The Times recently reported on HMRC data that the number of under-30 year olds in the UK earning £1m+ a year has reached a record high level. As some 830 young people reach millionaire status, their minds will naturally turn to how to best manage and protect this wealth going forwards. As a result, younger UHNWs are turning towards prenups. Lauren Roche writes

Social media platforms such as Instagram and Tik Tok have, somewhat surprisingly, been instrumental in creating a financially savvy generation, through the work of financial content creators sharing tips on how to best manage money, where to invest, and how to capitalise on wealth.

A new generation of business-minded, entrepreneurial young people has led to a rising number of millionaires and ultra-high-net-worths (UHNWs) under 30.

Whilst there has been a shift in attitudes towards relationships and marriage in recent years, there is still an appetite for marriage in the UK, and this has led to a rise in the number of UHNWs seeking legal advice on how to protect their financial portfolio and an option is prenups.

UHNWs and Prenups

Family lawyers are seeing more and more people having up-front conversations within their partners about money as their thoughts turn to marriage. Whilst prenups have in the past been the preserve of celebrities and popular primarily in the United States, they are growing in popularity in the UK as a way of working out finances, and putting protective measures in place, ahead of marriage.

Over the years, the media has regularly reported on the role of prenuptial agreements in divorce settlements. Recently, Ariana Grande’s ‘ironclad’ prenuptial agreement made headlines as it has been used to protect her income made from her career.

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A prenup is a document laying out an agreement between two parties on their finances, assets, property, and other matters and what the intention of the couple is for these assets should the marriage break down. They can also include agreements around children.

Although they are not legally binding in the UK, as they are in many parts of the US, if they are drawn up according to specific criteria, and by an expert family lawyer, they can hold weight in court decisions should the marriage end and there be a dispute.

For example, there must be full and frank financial disclosure made by both parties when constructing a prenup, it must be entered into freely and willingly by both and signed at least 28 days before the wedding. It is important that independent legal and, importantly for UHNWs, financial, advice is sought by each party, and that the document is put together by a solicitor.

Prenups are living documents, and it is recommended that they are revisited and amended regularly, at least every five years, and sooner if there is a change in circumstances. This could include, for example, receiving significant inheritance, purchasing a business, or even the birth of a child.

Talking about finances and seeking advice on a prenup may not seem like the most romantic of conversations, especially for the newly engaged. However, it can mitigate the risk of dispute and additional emotional and financial stress should the marriage end.

Alternative options: cohabitation agreements

Nevertheless, marriage can, for UHNWs, be a sticking point in relationships. Some individuals and couples may choose to avoid marriage altogether in order to prevent their finances from becoming legally intertwined.

For those who decide to not get married, but are in long-term, cohabiting relationships, there are other measures that can be implemented to protect finances and assets.

It is a common misconception that unmarried, cohabiting couples have the same rights upon separation as their married counterparts. However, this is false. Living with someone, even for a considerable length of time, does not automatically entitle parties to shares in property, finances, or assets.

In cases where an UHNW is keen to protect their portfolio, a Cohabitation Agreement may be needed to ensure proper protection and wealth management. A Cohabitation Agreement is similar to a prenup and provides clarity for the relationship. It clearly lays out the rights and responsibilities of both parties and the expectations for during the relationship, and those for if it ends.

As with the prenup, a Cohabitation Agreement is not legally binding. However, if the parties seek independent legal advice and the terms of the agreement are fair and reasonable, they can be used and hold weight in a separation dispute, particularly when it comes to property issues.

Risks for UHNWs

Seeking legal and financial advice, prenups or not, is essential for UHNWs looking to get married or enter into a cohabiting relationship.

Where a situation can become complicated is if an UHNW has a child with their partner, and the relationship ends. The law is designed to protect children, so it is highly likely that, in the event of separation, agreement would be put in place to address the financial requirements for the children, together with arrangements for their care.

As it stands, the Child Maintenance Service use a statutory formula to work out the sum to be paid for child maintenance, but there is a gross income ceiling using the CMS formula which currently sits at £156,000.  This means that CMS will only calculate child maintenance using income up to this amount.  It is however open to the ‘receiving’ parent to apply to the Court for any child maintenance to be ‘topped up’ but again, there is an income ceiling set at £650,000.

This however may not be the end of the story for UHNWs.  In addition to child maintenance, there is scope under Schedule 1 of the Children Act for the Court to make an order for a lump sum of money for the benefit of the child, or even the transfer or settlement of property for the benefit of the child.  UHNWs are rarely able to avoid these types of claims, and early legal advice is key.

By not seeking legal and financial advice, an UHNW individual may be putting themselves at risk. For this new generation of under-30-year-old millionaires, understanding the extent of their financial portfolio and how to best manage and protect it is, understandably, of paramount importance.

When it comes to relationships, although asking a future spouse or long-term partner for a financial agreement might not seem like the most romantic of conversations, it can save a great deal of stress and heartache down the line.

Lauren Roche is a Partner at Stowe Family Law