Keeping it in the Family: How to Preserve Family Wealth on Divorce

Families have also become increasingly reluctant to provide financial assistance to their adult children due to concerns around succession and preserving family wealth if their children were to get divorced. Whether parents want to make lifetime gifts to their children, provide capital for a business or property, or simply name them as a beneficiary to an estate, upon divorce, the result could be that a significant part of the family wealth, which parents have worked hard to generate, could be exposed to potential challenge.

There are, however, several proactive steps that can be taken to help preserve the wealth of the immediate family in the event of a divorce.

Pre-Nuptial Agreements

A pre-nuptial agreement (pre-nup) is a legal agreement between two parties, before marriage, that records how their assets are to be divided in the event of a future separation or divorce.

They are often used to protect family wealth and any contributions parents have made or intend to make to their children. If a parent wants to make a gift, transfer money or property, or leave an inheritance to an adult child but protect them from division in the event of a future divorce, then a pre-nup is essential. Some parents may feel they need to make it a condition of any gift or advance that such an agreement is entered into.

There is currently no act of Parliament in England or Wales that makes pre-nups legally binding but in practice, significant weight will be attached to them so long as they are freely entered into with a full appreciation of its implications, and importantly, the agreement does not lead to an outcome which leaves one party in real financial need. Parties should always seek specialist family law advice so that the guidance given by the Supreme Court in Radmacher v Granatino [2010] UKSC42 is followed.

Post-Nuptial Agreements

A post-nuptial agreement (post-nup) serves the same purpose as a pre-nup and can be entered into any time after marriage. It also sets out how assets should be divided should the marriage break down.

The most common reasons why couples may enter a post-nup, rather than a pre-nup, is that it was not thought about before marriage, the couple simply ran out of time before the marriage to have it properly considered, negotiated and executed or there has been a change in financial circumstances for one of the parties to a marriage.

Loan Agreements

A properly drawn-out loan agreement can also protect contributions to an adult child’s finances if the parents are expecting that contribution to be repaid at some stage. It is increasingly common for parents to contribute money towards a child’s home or property renovations and if this was intended to be a loan and not a gift then a loan agreement can add an extra layer of protection in helping ring-fence that money upon a future divorce.

Within financial proceedings, it would be far easier to persuade a Judge that the contribution from one party’s parents towards a deposit on the family home was a firm loan that needed to be repaid if there is a clear, contemporaneous agreement drawn up and signed. This should set out the amount to be loaned, the purpose of the loan and detail repayment terms and conditions.

In an increasingly uncertain world, taking steps to preserve and protect family wealth has never been more important. With the rise in intergenerational gifting and support, families must carefully consider how financial assistance is structured to avoid unintended consequences in the event of divorce. Tools such as pre-nuptial and post-nuptial agreements, as well as properly documented loan arrangements, offer practical and proactive ways to safeguard assets and provide clarity for all involved. By planning and seeking tailored legal advice, families can support the next generation with greater confidence and security.

How Forbes Solicitors Can Help You

Experienced Family Law Solicitor Adrienne Baker offers expert legal advice and support in modern family matters, including wealth preservation. Forbes Solicitors offers nationwide services, with consultations available by telephone, video call, or at any of our offices. Whether you're considering family financial planning, navigating complex family dynamics, or need legal guidance on any related matter, our dedicated family division is here to assist. For more information or to discuss your case, please don’t hesitate to contact us on 0800 689 1058.