Many families understandably want to protect their dynastic wealth for future generations. Protection of family wealth during a relationship breakdown and divorce is a crucial consideration, so when family members enter into relationships or marry, they should explore a range of legal tools to safeguard assets should those relationships break down.
What tools are at your disposal?
One of the most common tools is the nuptial agreement- either pre-nuptial (before the marriage) or post-nuptial (after the marriage). These agreements set out how family wealth (or non-matrimonial assets) will be dealt with if the relationship breaks down. If carefully constructed nuptial agreements can protect wealth created by the family before the relationship. Whilst our family courts are not currently bound to implement the terms of a nuptial agreement as the court retains a wide discretion, a carefully drafted nuptial agreement which is fair will be significantly persuasive. This is why it is important to take specialist family law advice to ensure that nuptial agreements have the best chance of being upheld.
Another tool is the creation of trusts-a legal arrangement by which assets are transferred by the settlor to trustees who manage those assets for the beneficiaries of the trust. If the trust is discretionary then this means the trustees decide on the distribution of assets. If properly set up trusts can provide significant advantages for inheritance tax planning and protecting family assets from divorce settlements.
Carefully drafted wills show intent and are essential for family wealth planning.
From the above it is clear that there is a significant overlap between the family and private client specialist advice.
Interesting family case law
In a recent landmark case of Standish v Standish the ruling from the Supreme Court has confirmed the essential interface between private client advice and specialist family law advice when considering steps to protect assets. It is not sufficient to undergo wealth planning without considering the family law impact. It seems clear from this case that had the husband put in place a nuptial agreement to sit alongside his tax and estate planning, it would have assisted his case that notwithstanding the transfer of certain non-matrimonial (generated outside the marriage) assets, to his wife, these assets were not intended to be shared in the event of a divorce, much easier. Many wealth planning strategies include gifts, transferring assets, creating discretionary trusts and family investment companies but these will only assist when it is clear what those parties intended in the event of a divorce.
Another case, reported as PS v NB deals with trusts and is also important in terms of wealth planning and its impact in the context of divorce. In this case, which has been running for over 3 years, the Judge found that a trust set up by the husband was a sham and in fact the husband controlled the trust assets at his sole discretion. The Judge went on to comment that the husband had “unfortunately done everything in his power” to ensure that his wife would not receive her fair share after a long marriage. In this case the husband was penalised with a costs order of £850,000 as he had failed to comply with many of the orders. The recovery of all sums due to the wife are ongoing.
These two cases illustrate the importance of combining wealth protection strategies with the assistance of a family law specialist. At Moore Barlow we have specialist family and private client teams who work together to provide the full range of services you may require to protect family wealth. Should you wish to discuss anything raised in the above, feel free to contact Louise Barretto in our family team DD +44 (0)20 8334 0311.
