Personal Finance: UK mulls PreNups - but under strict conditions

The concept of a "pre-nup," so fashionable in California and therefore on television series, is simple: it's to protect the wealth of one party against the other being a gold-digger.

It's appropriate that the idea comes from the Gold Rush state because California has, like Texas, a law that says that, with limited exceptions, all marital property is community property i.e. property and wealth acquired during the marriage - or in contemplation of marriage (so shacking up first is covered) - is to be shared equally on divorce. In a state where divorce is rampant and rich old men both select and are selected by fit young women, that has the potential to create a very lucrative career for the serial bride and to reduce the wealth available for the dynastic development of a family.

But it's not at the seriously wealthy end of the scale that the real problems arise: after all, after the first 50 million, how much more can anyone realistically need, right?

Where the problems arise is in small and medium sized businesses where, by reason of the property statute, the departing spouse is entitled to half of the business. Not, note, half of future profits; half the business. That gives her (or in rare cases him) 50% ownership and, almost inevitably, a management or board seat. How two people that can't manage to live together expect to succeed in business together is, frankly, beyond comprehension.

The truth is that they can't: the one who built the business usually ends up buying out the one who is leaving (who has all the power and therefore more control over the price), often for a cost that then leaves him with a business but little money or, even, living in much reduced circumstances.

So the pre-nup is actually a valid tool, where community property applies, to constrain the wilder excesses of either party on divorce.

The UK (or to be more precise in the context of the proposed changes in the law England and Wales - Scotland and Northern Ireland have their own legal systems) has long said that its courts will take account of the wishes of the parties expressed in a pre-nup, if one is entered into, but it will not regard it as binding on the Court. That allows for both the fact that English Courts don't like the idea that the parties can make final decisions and also the fear that the financially weaker party may not make a fully informed decision.

The Law Commission is the England & Wales body that advises the government on matters of legal change and it thinks that it's time to examine the whole idea of the pre-nup.

A consultation paper has been issued (see below) which terms "pre-nup" as a "marital property agreement).

Perhaps the most interesting aspect is to be found, summarised, in the preamble: the agreement "would not be enforceable against a party as a qualifying nuptual agreement unless that party had received material full and frank disclosure of the other party's financial situation."

So the idea of telling that 19 year old fake blonde with huge - and strangely shaped - boobies that if she signs a prenup agreeing to get GBP50,000 as a full and final settlement won't work - unless you have first told her about the several hundred million shares you own in the family computer company and the tens of millions in an offshore account.

The cynics amongst us (and remember that ChiefOfficers.Net is part of The Anti Money Laundering Network) can see a tremendous opportunity for under-the-covers work by revenue officers who can't get evidence of hidden wealth any other way and, whilst immoral, the disclosure would, under the current state of the law, be evidence which could be produced in Court.