Protecting your wealth upon divorce and separation
Upon the breakdown of a marriage, one of the first questions to address will be how to divide the assets, and liabilities between the parties. How the court goes about achieving what is deemed a fair division is not always straightforward, but in nearly all cases there will be a detailed examination of what assets are available, whether it be the family home, properties pensions, investments and incomes, from all sources.
But what steps can you take to protect your financial position during any division?
The starting point when considering asset protection is to accept the principle that not all assets are treated the same by the courts, and therefore how you deal with your assets may well be the deciding factor in how they are to be distributed.
Ben Castle, senior associate at Calibrate Law, addresses some of the more common and pertinent questions usually raised.
How can I protect my assets acquired before marriage?
A Pre-nuptial agreement is a contract made between individuals prior to marriage, which sets out what should happen to their assets should there be a divorce.
Whilst pre-nuptial agreements are not binding in England and Wales, they do provide the court with an indication as to the intentions of the parties on marriage. They also, if properly executed and in compliance with well-established formalities, will likely be upheld by the court when dividing assets, providing the housing needs of the parties and the children are met.
My parents are thinking of giving me some money, but they are concerned about divorce risks. How can I protect their gift from divorce?
There are a number of mechanisms available. A trust can be a good option, but more and more commonly parties are considering Post-nuptial agreements. These function similarly to Pre-nuptial agreements but are made after marriage.
I have just received an inheritance, and my marriage seems to be struggling – what should I do?
Where there are limited assets available to meet the costs of both spouse’s houses (and any young children), the court may well determine that money should be made available to both parties. These instances can require complicated legal arguments and in-depth research, so keep records.
However, where there is enough capital available to meet all housing needs, the court will look at how the inherited money has been used or kept by the receiving party. Where the money has been spent reducing a mortgage, or paying off debts, or even just being spent on holidays and outgoings, the courts are likely to treat that money as spent and should be deemed a voluntary contribution that need not be repaid.
Where the inherited wealth that has not been used, where interest received has not been spent but accumulated and saved with the inheritance, and the inheritance has been kept separate from other money or investments, the court is more likely to deem the inheritance an asset that should be ringfenced. The question is whether the inheritance has been kept separate from the matrimonial finances or intermingled within the finances.
How can I protect my family business on divorce?
Dealing with business assets on divorce can be costly and stressful. Where a party owns or wishes to own a company owned by a spouse, it is in that party’s best interests to ensure that the business is valued accurately, to include all relevant circumstances. Our in-house tax, finance and property experts can assist you in deploying that information.
The court has a wide range of powers to reach into businesses to extract assets, irrevocably changing or damaging your hard work. However, there are steps that can be taken to safeguard company assets.
For example, if the business is held in a trust, or there are limitations on the types of people who can be shareholders, this can prevent a spouse from having a direct interest in the business and interrupting how it functions. You may also want to consider having separate classes of shares with different rights attached to each class.
Transfers of shareholdings can also be limited by including pre-emptive rights over any transfer; this would mean that upon sale or transfer, they must first be offered to other family members. This often dramatically reduces the value of the shareholding for the purposes of a matrimonial division.
Separating out shareholdings amongst family members, so that each member only controls a minority of the shares, can also have a detrimental impact on valuation. Therefore, when setting up such a business, you may want to give careful consideration to who may have shares and in what size.
So what should I do to protect my assets?
It is vital to take early legal advice so that you can make informed decisions about protecting yourself and have time to implement whatever steps suit your circumstances. There is no one-size-fits-all approach to protection, and a tailored approach is nearly always required.
If you require support or guidance on the issues highlighted in this post, or generally on divorce and the financial issues faced, do not hesitate to contact firstname.lastname@example.org. Ben Castle is a Senior Associate at Calibrate Law.
This post is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice.