Ring-fencing inheritance in divorce or dissolution

Understanding ring-fencing in divorce or dissolution settlements

Ring-fencing refers to the practice of protecting certain assets from being divided in a divorce or dissolution settlement. In the UK, this concept is especially relevant when considering inheritance and other assets acquired before or during marriage or entering into a civil partnership. The aim is to ensure that assets meant for one party remain protected and are not included in the marital pot for division.

Legal principles and fairness

The Matrimonial Causes Act 1973 guides the division of assets in divorce and dissolution, focusing on fairness and the needs of both parties. Factors such as financial needs, obligations, and contributions of each party are considered. The Act provides flexibility, allowing for the unique circumstances of each case to influence the outcome. This is where ring-fencing comes into play, balancing the need to protect individual assets while ensuring fairness and the meeting of needs.

Supporting ring-fencing

Proponents of ring-fencing argue that it maintains fairness by acknowledging each partner’s financial contributions before and during marriage or civil partnership. If one partner receives an inheritance or possesses significant assets prior to the marriage or civil partnership, ring-fencing ensures these assets are treated as separate. This approach recognises the importance of safeguarding pre-existing financial interests while ensuring both parties’ needs are met.

Criticism of ring-fencing

Critics argue that marriage or civil partnership involves shared efforts and contributions, both financial and non-financial. Excluding certain assets from division can lead to unfair outcomes, especially if one partner’s non-financial contributions, such as childcare or supporting the other’s career, are undervalued. Additionally, there is a risk that assets could be intentionally segregated to avoid fair division, undermining transparency and fairness.

Court’s role in ring-fencing

The application of ring-fencing varies case by case, with the court’s primary goal being to achieve a fair outcome which ensures the needs of both parties are met. Courts scrutinise the origin of assets, timing of acquisition, and intentions behind their separation. The decision hinges on balancing individual contributions and overall fairness, ensuring that both parties have their needs met in terms of housing and income both now and in retirement. If the marital assets do not meet both parties needs, funds which may be perceived as ring-fenced can be invaded to ensure needs are met.

Practical considerations

Divorce or dissolution involving significant assets can be contentious. Mediation and negotiation are encouraged to reach an agreement, reducing financial and emotional costs. Prenuptial or postnuptial agreements can outline how certain assets should be treated, including whether they should be ring-fenced. These agreements provide clarity and protection, helping to prevent disputes during divorce or dissolution proceedings.

Ring-fencing inheritance in divorce or dissolution is a nuanced and debated topic within the UK legal system. It raises questions about fairness, individual contributions, and the recognition of non-financial contributions. Supporters argue that ring-fencing protects pre-existing assets, while critics stress the need to consider the holistic contributions of each partner. Ultimately, the courts play a pivotal role in applying ring-fencing to achieve equitable outcomes.

How Moore Barlow can help

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Our experienced family lawyers are here to provide you with expert advice and guidance on all aspects of divorce finances. Our aim is to help you move forward with your life, with the peace of mind that comes from knowing that your financial future is secure.

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