Episode 4: About prenups and cohabitation agreements

Angela:  Hello, and welcome to It's The Law, with me, Angela Roberts, and Consultant Solicitor, Austin Lafferty. Now, as it's wedding season, as we're recording this, we're going to have a look at the legal side of moving in together, either when getting married or simply cohabiting. Now, first of all, Austin, there are legal documents to think about when planning a wedding, aren't there?

Austin:  There are, Angela. And I'm going to start by being a grumpy old man, a grumpy old lawyer, and say, whereas if you're going to drive a car or fly a plane or become a doctor and give people medical advice or becoming a qualified joiner, loads and loads of things, you need to do a course, you need to pass tests, you need to be competent. Going into marriage and even worse, cohabitation, you don't need anything at all, even though there are so many legal obligations and obstructions and risks and things to be taken account of.

So when they say love is blind, it is absolutely true. But unfortunately, if you walk into a relationship blind like that, then the risk, and it's maybe a one third risk because that's the number of relationships that fail, the risk is that you have to leave that relationship and have not a clue what your rights are and have not protected them. And that, I think, is the bulk of what we're going to be talking about today.

Angela:  OK, so first of all, let's have a look at prenups. What are they? And in what circumstances should you consider doing one?

Austin:  Well, prenups, the shorthand is that phrase prenup, and it's very much a kind of American thing in the sense that that's where you see it most, either in news or in films or other output from the United States, where the prenup is an absolutely classic thing for people that have money. It's short for prenuptial agreement, and it's a contract, for want of a better word, in which a couple are getting together and are kind of pooling their resources, but it may be that one of them has a lot more money or assets than the other. And because of that risk that I mentioned earlier on, where, you know, up to a third of relationships may fail, although you say, till death us do part, that may not be the way it turns out.

And if five years down the line, you find that you don't love each other as much as you did, or somebody has done something terrible, or there's another reason why the relationship is not going to proceed successfully, the person that has gone in with all their assets wants to get back either all of them, or as many of them as is fair and agreed. And therefore, before going into that commitment, both parties agree that they will divvy up the assets in a certain way if the relationship fails.

Angela:  What sort of things should you put in them?

Austin:  Well, the classic might be that one of the party’s owns a house and the other one comes to live in it. And the title to that house is in the name of the one who was a singleton until the relationship started. Because in Scots Law, if you're married for a period of time and then the relationship fails, there are a number of basic laws about fair division of assets.

And it may be that that property or part of it, or part of the value of it comes in to play in the claim by the other spouse, the one that was not on the title. A prenup can have both parties agreeing that whatever else happens, that property will remain the property of the one who owned it before. Now, that's a very simple example.

And one of the essences of prenuptial agreements is that they are supposed to be comprehensive and cover all of the assets that both of them have. And it may just be that they both have the same amount of wealth, but that they want to make sure that they come out without having to go through a horrific process of negotiating for every chair and every bank account and every bit of every pension. So the prenuptial agreement, I think you could say it's designed to both simplify and protect.

Angela:  Now, you mentioned there the sort of money side of things. How much do you need to disclose about your finances and the agreement?

Austin:  Well, one of the things about prenuptial agreement is there will be a clause in it saying that both parties are agreeing this in, you know, full and final sort of settlement, even though the full and final settlement normally means at the end  something. This is at the beginning of it. But there is a requirement that they are not misleading each other, that they are being honest.

Now, the agreement may only cover some of the assets. It may be that they say, well, look, we each own a house abroad. We're not going to bring them into play.

But even that, it should be made clear in the prenuptial agreement, whether it's all assets or whether it's a limited thing. But certainly neither party can mislead the other or hide things.

Angela:  Are they binding?

Austin:  They are binding. Now, it's an interesting thing. They are binding.

But if at the end of the relationship and the separation, when that takes place, and this is, I'm not talking about divorce, I'm talking about when the parties actually decide to go their separate ways, because that's the relevant date in Scottish law for calculating a share of matrimonial assets and possibly kind of non matrimonial assets if it's a cohabitation. We'll come back to that. But if at that time it is manifestly unfair, lopsided, one sided, oppressive, that the prenuptial agreement stands as it is, then it is competent for either of the two to go to court to seek to amend the prenuptial agreement.

Now, you may, on hearing that, say, well, what's the point of it if it can be overturned? There are two points. One is that, again, going back to what I said about it being crazy that people go into binding relationships without doing their due diligence, it is a form of due diligence.

The second is that if the prenuptial agreement is fair at the time, then it is very unlikely that it can be overturned at a later point. And that kind of comes back to your question about, you know, hiding things or misleading. As long as both parties have gone into it fairly and openly, and it has been a fair assessment of their agreement, then it is highly unlikely it can be overturned at a later point.

Angela:  Okay, this is a prenup. We're going to get married. So how long before the actual ceremony, you know, should you be signing an agreement like that?

Austin:  Well, the lawyer shouldn't be scurrying up the aisle to get your signature when you're in your, you know, white dress or your tails. Generally speaking, people will plan their wedding months ahead, perhaps sometimes even years ahead. For the ones that are going to fetch up in an Elvis chapel in Las Vegas, they're likely not to have been planning anything sensibly ahead.

But the classic thing is people fall in love, get engaged, and then the marriage is going to be months or even, you know, more than a year afterwards, and that's plenty of time. A prenup probably takes at worst a few weeks to organize and get signed. Go to a good family solicitor, and they're already kind of on the case, you know, they know the questions to ask you about your assets, about what you've agreed, about what your wishes are if things go wrong.

So that's where a well-trained and experienced solicitor can help the process, not just in terms of time and saving time, but in adding value by saying, look, have you thought of this? What about that? And do you want to do it by way of exchange of letters between ourselves and other solicitors, or have a meeting with both of you there together, plus the solicitors there, a kind of almost an exploratory meeting to make sure that everyone is singing from the same hymn sheet, literally, if it's a church wedding.

And that way, you can get to a point of certainty and agreement really quite quickly. So to come back to your original question, how long before, a comfortable time before, so that the legals are out of the way, I would say, at least a few weeks before the wedding itself. Because in the run up to the wedding, as I'm sure you'll remember, and I certainly remember, there are so many other things to do.

And that is the dresses, the flowers, the hotel, a million things. So what you don't want is to have either legal disputes or uncertainties as you're doing those important things.

Angela:  One thing that I'm always intrigued by is, would I be offended if I was to get married again? Would I be offended? Is there a slight uncomfortableness about this, you know, signing a prenup?

Austin:  There's a huge uncomfortableness about it, to be honest. And, you know, human nature is a funny thing, and lawyers in particular are students of human nature, and they understand psychology and body language and people's attitudes and moods, particularly when they're sitting in front of you in the office. And what a good lawyer will do, will say to the client, look, we hope for the best, but prepare for the worst.

And that's the same in almost every important thing you do in life. And you don't want to be thought of as a killjoy, killing the romance of two young lovers, starry-eyed. What's that old thing that you used to say about Hollywood?

You know, keep your eyes on the stars, but your feet on the ground. And that is the territory that we are in. We have to be realistic.

And it's the same when, for example, a client comes in to see me about making a will. They don't want to talk about their death. And I don't want to talk about it either.

But for 20 minutes, half an hour, an hour, we will talk about death and disaster. And in our case today, talk about separation and divorce. And then draw the line, close the door and move on and enjoy the rest of the festivities.

Angela:  Now, you actually mentioned there going to Las Vegas. A lot of people do go abroad to get married these days. So what sort of legal requirements are there for that situation?

Austin:  It depends. And it depends on the individual country. And I'm not an expert in legal systems elsewhere.

But what I will tell you is this. From time to time, I have clients coming to me and saying, I'm getting married in Italy or Spain or wherever it is. They need an apostilled copy of my birth certificate.

Or sometimes, if you've got married here, and then you're having another ceremony abroad, they want to see the marriage certificate. And for all formal documents that are UK-based, they can be apostilled. And that's a fancy word for legalized.

And legalized means they go to our foreign and commonwealth office and are stamped with a special stamp and certificate, saying that these are genuine documents, or if they're copies, copies of, you know, genuine copies of genuine documents. And that apostille has international legal significance and is accepted in, I'm sure pretty well, all countries, all civilized countries at least, where there is to be something happening. It's not just in marriage, but that's the one that you see most often, where people are going abroad to get married, and the authorities overseas, whatever it is, need a binding and authoritative statement of the status of the people that are coming over.

And that means that our foreign and commonwealth office will kind of countersign the document. And it goes, the actual document goes to maybe the notary or the officials abroad.

Angela:  That sounds like a lengthy process. It's not something last minute, then, is it?

Austin:  Well, it isn't. It isn't. The Foreign Office, there's two ways of doing it.

You can either send the actual document and a form to the Foreign Office directly, and they will process it, send it back. I do it a different way. We have registration agents who are based in London, who physically go to the Foreign Office with the documents.

Now, they charge a little bit more than sending it direct, but it's absolutely worth it in terms of risk management. It's worth it because they will liaise with us in person. They will go to the Foreign Office, come back, and then they'll email us immediately to say, we've done it.

It's ready. Whereas without any criticism of the Foreign Office, it's a huge organisation. You send stuff in, nobody to talk to.   You don't know where it is or how long it's going to take coming back. And if you are under pressure of time, then it's another stress, certainly for the bride and groom. Bridezilla is on the phone to you every day saying, where's my apostille?

Whereas if you use the registration agents, then they are in control and are very good at liaising with us.

Angela:   And one other thing about prenups, it used to be that the bride would pay for most of the wedding and that's maybe a bit more old fashioned now. But if one of the parties does receive a gift from their parent, what's the risk in that if things do go pear-shaped?

Austin:  Well, good question, madam. What happens is that if it is a gift to both of them, and then they separate either sooner or later, then the person who has given the gift, or the child of the person giving it, let's say it's the bride's mum and dad – the bride cannot reclaim the full gift and the bride’s mum and dad cannot reclaim well, any part of the gift. There's two aspects to this.

One is, it's a gift. It's not a loan. It's not a conditional payment.

It's not based on whether the next five years, if your marriage succeeds, then you can keep it. It is a gift. So it's a payment outright.

But also if it is a gift to the couple, then it belongs to them jointly, or as we grandly call it, jointly and severally. And that means that if the couple separate later on, and they have to divvy up between them, then it's not a question of the, in this case, the bride, the wife saying, oh, it was my parents that gave it, so I can get it back. If it was made jointly, either in terms of the documentation or just verbally, you know, there's a gift for you both, there's 10,000 pounds towards a deposit to your house, then it belongs to them jointly.

And the joint ownership is in a sense permanent. So the other spouse owns half of that gift.

Angela:  Okay, let's move on to cohabitation agreements. Or is it pre-cohabitation agreements?  I'm not quite sure.

Austin:  Well, it probably is either. These are, in a sense, less common, because I said earlier that pre-nups have not really taken root in our legal system. People do them, and solicitors offer them, and they are a good thing when used properly.

Cohabitation agreements, probably even less common, but in one sense, more important, because whereas marriage is underpinned by Scottish divorce law, so that even if you go into a marriage without any care or knowledge of the law and what you can claim if it falls apart, the law does provide an underpinning, a fair sharing of matrimonial assets, and some very detailed, shall we say, law around that, so that there is a safety net, if you like, even for the most unwary. Cohabitation is not as regulated as that. People go in, and if they are simply cohabitees, they are simply, if they bought a house together, they're simply joint proprietors of a house.

And indeed, if one of them had the house and the other one moves in, then it's still the first one's house, and that's it.  If they don't have joint accounts, if they don't have an agreement, even a verbal one, as to what will happen when they, if they separate, rather, then it's a bit of a free for all. The Scottish Parliament brought in some protective laws over the years so that if somebody leaves and they're in financial distress, then it may be that they can claim some kind of support from the other partner, but you should never rely on that.

An absolutely cast iron way of protecting yourself is to have a cohabitation or pre cohabitation agreement, because unlike with marriage, you kind of start from a blank bit of paper saying, right, what is it we are concerned about? What do we want to agree if things go wrong? What do we want to protect for each one of us?

And again, a well trained, experienced lawyer for each of them can advise how to go about that because the protections that are available through a contract, a cohabitation agreement are absolutely firm. And once that is signed up by both cohabitees, then it is binding and it is binding into the future.

Angela:  You would think that these days a lot, if not the majority, are now living together. And it could be that people are divorced and then they're in their house and then someone else moves in. So you would imagine that it's really important to have something like this in place.

Austin:  Well, it is. Yes, there are all sorts of combinations that are more complicated than, you know, in the old days. It's now kind of respectable.

Perhaps it was frowned on in a way in the past. And then the phrase, bidey in, there's a kind of, you know, scolding.  Whereas now, rightly, it is up to people's individual choice as to how they want to organize their family lives.

But yes, somebody who is, for example, separated but not yet divorced, may move in with another person. And that adds another level of complexity. But still, the law regards the two people living together for almost all purposes as two individuals that happen to live at the same address.

They could have a joint account and that's fine. The usual laws apply to that so that if they have agreed to kind of pool their resources together then each is entitled to a fair share back out. But in the absence of something written down and signed and articulating how things are to go and what's to happen in the event of separation, in the absence of that, then the distress of breaking up is quadrupled by having to fight for every penny and indeed to go to a lawyer and find out, oh, well, I'm sorry, because you didn't sign something up or agree something before you started, or put it in joint names.

I'm afraid your coat's on a shoogly nail, to use another Scottish legal phrase.

Angela:  So if someone moved in with another person who already was in that house and owned that house, do they have any sort of occupancy rights on the house?

Austin:  Well, they will get occupancy rights after a period of time, and once it is clear that that is their residence. So occupancy rights are different from property or financial rights. They are a protective area of law, and what they in effect mean is that you cannot be put out by a person with whom you are living if they turn out to be violent or intimidate you or cause other problems, either physical threats or even psychological pressure.

If you as a cohabitee, but not on the title deeds, need protection from your partner, then there are various rights, various orders that are available to you if the court is satisfied that you require them. They include an interdict against the other partner, you know, acting badly and being obnoxious or threatening. An order putting the other partner out of the property temporarily, a power of arrest, so that if the other partner then comes back to the property, they can be lifted by the police.

If you are feel under threat and you report the matter. And also a statement, if you like, a declarator that you have occupancy rights. If you are married, then you have occupancy rights by, you know, automatic operation of law.

If you are a cohabitee, you have to actually go to court to get the rights stated. And that's again something that is an additional hurdle to get over between unmarried and married. You know, another day, if we had four hours to spare, we could sit and talk through the detail of this.

But the bottom line is that marriage creates a set of legal protections. They're not ideal and they're not comprehensive, but they are there and they are effective. Cohabitation has very, very few protections for a vulnerable partner.
There are some, but even those you generally have to fight for, they're not given to you automatically.

Angela:  So should each party get different advice? You know, their own independent advice?

Austin:  They should. If, as a couple, they are in harmony and just want some technical information about, you know, what there might be in a prenup up agreement or a cohabitation agreement, or in the event that they don't bother with that, then, you know, a friendly solicitor can give them information. And indeed, back in the day, I spent years doing that on television and radio, where you had to speak generally to people and give them the kind of trigger for going and getting their own advice.
But when it comes to actual advice, both about somebody's individual rights, duties, obligations, protections, and then taking things forward to negotiate and complete some kind of agreement or contract, then each party has to have their own individual solicitor, because otherwise it would be a conflict of interest between the two of them, and the same solicitor could not act for both.

Angela:  OK. What about children? Can they be dealt with in a prenup or pre-cohabitation agreement?

Austin:  Well, children and we have this question in wills. When people have young children and they want to make a will, and they say, well, you know, who's to look after the children after a die? In law, children are not property.

They are individuals. So you cannot say in advance who is to care for children. If, you know, on the one hand, if it's a will of parties, if the maker or the parent dies, and cohabitation agreement or prenup, if the parties separate, there's only so much you can deal with.

And prenups tend to be for money and property rather than personal relationships. That's not to say that you can't build in that an obligation to be fair and generous in terms of child maintenance. When the time comes, if the time were to come.

But by and large, the prenups and cohabitation agreements are to deal with the division of things. And  you can't divide a child. The other aspect is, I mentioned a way back that with a prenup, the only way of overturning it is when the separation comes about, if it would be manifestly and grossly unfair to apply it, given the circumstances that there now are.

The same is true with child care, child and child maintenance as well. If it would be either kind of crazy or not in the child's best interests, to apply a formula that was thought of 10, 15 years ago, then it would not be difficult for the court to find that you need to deal with the children as things are now, rather than as they were anticipated a long time ago before reality struck.

Angela:  So if a couple are living together as cohabitees and they've signed this agreement, and then a few years later, they decide that they're going to get married.

Austin:  Yes.

Angela:  Do you update it or is it null and void?

Austin:  It's well, it's not automatically null and void. Although a well crafted cohabitation agreement might say if there is a change of circumstances, such as marriage, then this agreement may either fall or the parties have a period of, I'm going to say six months to amend it or update it. So there is an opportunity to change it because marriage is a changed relationship from cohabitation.

And I think it's right and proper that the parties at least have the opportunity to reconsider. Now, if they, even if you don't put that in a cohabitation agreement, and the two of them decide, right, we're going to get married now, they might off their own bat say, oh, that old agreement, let's have another look at it because it may be that we both want to change. And a contract, one of the essential features of any contract, it could be multinational or an industrial commercial thing.

But here, a personal contract is if both parties agree to change it or indeed to scrap it, then they're free to do so. It doesn't bind them in that sense. It's just that one unilaterally can't say, I've changed my mind, I want to scrap that.

Angela:  And if one cohabitee leaves or falls ill or even dies?

Austin:  Well, if they die, then it is like if they've gone as far as making a cohabitation agreement, it's almost certain that they will have made wills and that those wills will dovetail in with the cohabitation agreement. And that's fine. Falling ill may be canvassed within the agreement so that if one is unable to maybe work or manage their own life, then there are provisions there either to change the agreement or to bring in, I'm going to say, emergency procedures.

That's probably not quite the right phrase, but an alternative assessment of capital or that there's an obligation to use capital as required for the treatment or comfort or accommodation of that person. So, in a way, just to sort of sense-check what either a prenup or a cohabitation agreement might do, it's not a half-page job saying, right, we've both got bank accounts and houses, here's how they divvy up. There may be quite an in-depth analysis of the different possibilities there may be at a later point, separation, divorce being one of them, illness being another, children being yet another, other financial obligations, loss of business, loss of employment.

Because we don't, thankfully, we don't know what's going to happen tomorrow or the next day. If we are doing something, whether it be a will or a cohabitation agreement or prenup, we do our best guess as to how we would respond to the various things that might happen. Now, the things that might happen are pretty well known, and they are to do with health, to do with business, to do with family, to do with circumstances.

It's like an insurance policy, really. Does an insurance policy include war and terrorism? Those are usually the questions.

So does a prenup agreement cover all the likely and even marginally unlikely things there may be? And if it does, then it's properly made. And when something goes wrong, whether it be separation or something within the joint lives of the couple, then there is support or coverage or obligations within the agreements that they've already made.

Angela:  So I think we've covered just about everything there, unless there's something else you wanted to add?

Austin:  No, well, I go back to where I started, I think, which is if you are going into a relationship, it's not just a question of a kind of linear step by step into it and then saying, right, we've now done this. You know, prevention is better than cure in everything. And in law and in relationships and in personal life, it is very much so.

And again, the other thing we touched on, that we don't want to kill the romance by saying, oh, what if it goes wrong? What if you turn out to be a bully? What if I turn out to be hopeless as being a spouse?

You've got to dispassionately sit down, and perhaps with an advisor, with lawyers or with family maybe, or somebody you trust. So going into marriage, which has these legal underpinnings and these unexpected outcomes, because if you lose the marriage, you didn't know. People come into lawyers, people come in to see myself, my colleagues, and say, right, I'm separated and I want this, this, this, or my spouse, my ex wants this, this, and this.

And you say to them, well, none of that works because the law doesn't support it. Oh, is that right? I thought, you know.

Angela: So people are making assumptions.

Austin: Making assumptions. And the worst word in the world is surely. When they say to you, but surely I'm entitled to this.

No. If you had taken some advice before you went in, or at least even googled it, or looked, bought a book, and studied and understood what your rights are going to be. And do it, don't do it secretly away from your partner.

Do it with them so that you both know. And that may lead to a formal prenup, or at very, very least, it will lead to understanding what's at stake. And do you know something?

See people that go into relationships with a bit of knowledge and a bit of commitment based on understanding of their legal obligations and rights. Those relationships have a better chance of surviving than people going in blindly and finding out, you know, years down the line, oh, wait a minute, I didn't sign up for this. Why didn't I know about this?

It's because you didn't check and you didn't take advice. But my final point to everybody is, do not put love ahead of the practicalities. Use your head as well as your heart.It’s a combination.

Angela:  So the Americans have got it right then, maybe?

Austin:  They absolutely have. They are ahead of us, and it's actually in law, although I'm as proud of Scots and a Brits and European as anybody, in law and in litigation and in these kind of areas of personal administration, you often find that the Americans are way ahead and that we end up doing what they do. One brief example, power of attorney.

Power of attorney is, in effect, an American concept, certainly an American name, and it's been grafted on to our law because it makes such sense. It is a practical thing, and I hate the phrase I’m sure I have said to you before. I want it to be called a deed of agency or an agreement of authority, but power of attorney is the phrase we have straight from America, and we have it because it works, prenups work and are a great idea.