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

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10 August, 2020

The need to plan for succession and providing for the next generation has undoubtedly accelerated for many families due to the Covid-19 pandemic and the uncertainties that it brings. Families are now wanting to review their financial affairs with particular importance being placed on preserving and protecting their wealth.

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 end 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 a number of pro-active steps that can be taken to help preserve the wealth for 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 is wanting to make a gift, transfer money or property or leave 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 in to.

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 breakdown.

The most common reasons why couples may enter into 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 which 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.

No-one goes into a marriage wanting to consider or plan for divorce but looking ahead is essential for families who are concerned with preserving their wealth. We have experienced family solicitors at Forbes who appreciate that these issues need to be approached carefully and sensitivity whilst achieving the necessary protection required.

For more information contact Adrienne Baker in our Family/Divorce department via email or phone on 01254 580 000. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Family/Divorce department here

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