Money help desk: Can I protect assets before wedding?

I'VE recently become engaged and am due to get married next year. I'm in my thirties, have a great career, considerable savings and a lovely house which I bought ten years ago, where I live with my five-year-old daughter (from a previous relationship).

Would a pre-nuptial agreement be a good idea? I'm slightly worried as to how marriage will affect my, and my daughter's, financial position. I don't want my fianc to think I expect the marriage to fail - I just want to make sure that we're all protected. Should I bring this up with him?

MB, Edinburgh

Lesley Anderson, court department manager at Russel + Aitken (Falkirk and Alloa), writes:

Pre-nuptial agreements have hit the news again recently, not just because of celebrity break-ups, but also as a result of the royal wedding in April. According to media reports at the time, Prince William and Catherine Middleton chose not to sign such an agreement. And it's not yet known whether Zara Phillips and Mike Tindall, who are due to be married in Edinburgh on 30 July, intend to sign a pre-nuptial agreement.

Many couples who marry now have been in long-term relationships prior to their marriage, have children from a previous relationship, or have been divorced. They may, therefore, bring considerable assets to the marriage - in particular, heritable property. There appears to be a general misunderstanding that if a couple marry and live in a house which is owned already in the sole name of one of the spouses, the house will be joint property to be divided in the event of a separation or divorce.

This isn't the case, unless the house was purchased prior to the marriage for use by the couple as a family home. Otherwise, the spouse who doesn't own the house will be unable to seek a share of that property. Difficulties can arise, however, should that house be sold and the funds used to buy a further family home. In those circumstances, the law determines that the second home is a matrimonial home subject to division.

However, there's still a potential source of funds argument, which can muddy the waters as time goes by, and this can apply to other assets such as savings which were held by one spouse prior to the marriage but then used for the benefit of both. It's preferable, therefore, to obtain legal advice prior to marriage on how best to preserve and protect existing assets, and the inheritance rights of children from previous relationships.

Seeking counsel about whether a pre-nuptial agreement is appropriate is not cynical, it's sensible. Such an agreement is technically not enforceable as a contract in Scotland, but the courts will consider its terms should a separation or divorce occur.

With-profits pension has been disastrous

I AM one of the pensioners who has felt the negative effects of my with-profits Equitable Life pension being transferred to the Prudential. It has been a disaster. My pension goes down every year with them, so I feel that I have been shafted twice.

Recently I received a statement from them telling me that the with-profits fund has performed strongly and that the overall rate of return for all policies will increase by 2.5 per cent. They state, however, that many incomes will have reduced as a result of the anticipated bonus rate selected when the annuity was first arranged and also from the impact of any guaranteed interest rate that was included when customers originally arranged their annuity.

This meant that incomes were increased in the early years of the policy, which reduced the prospect for future growth and increased the likelihood of a fall in income over time. Is this any way to run people's affairs? It is so disheartening to receive this information when you thought that such a transfer would be a good thing. I feel that in a few years' time my income will be zero.

CW

Tom McPhail, head of research at Hargreaves Lansdown, writes:

The transfer of Equitable Life's with-profits annuities to Prudential didn't change any of the terms of the individual annuity contracts, just the fund in which the annuity money is invested. The rationale behind the transfer is that because Prudential's with-profits fund is larger and more financially stable, it should be able to produce better investment returns than Equitable Life in the long run.

The question for individual policyholders is whether or not the "declared bonus rate" every year matches the "assumed bonus rate" which was selected when their annuity was first set up. Irrespective of whether the annuity is invested with Equitable or Prudential, the principle is that investors who selected a high assumed bonus rate (for example, 4 per cent a year) at the outset would enjoy a higher level of starting income but would run the risk that if the fund failed to match this bonus rate then income payments would have to fall, as has now transpired.

This situation illustrates the fact that for investors at the point of retirement, the only way to avoid any future risk is to buy an inflation-linked conventional annuity. However, these are expensive. Any alternative, including with-profits annuities, drawdown plans and fixed-term annuities, all run the risk that if circumstances don't work out as expected, then income levels could fall.