Protecting your family’s assets

This figure represents an increase of between 5% and 10% since the 1990s. For some couples, pre-nups are becoming an integral part of the ‘wedmin’ process. 

Nevertheless, there remains a lot of mystery around pre-nups and other ways of protecting the family’s assets, not least because of the unromantic or pessimistic implications. So, for those seeking financial protection for their assets, what are the key points to consider? We speak to Camellia Buckmaster, Senior Associate at Payne Hicks Beach. 

What is the Court’s starting point with family asset protection? 

Even now, whilst the decision to marry is not usually taken lightly, people can sometimes tie the knot with little understanding of the significant legal and financial consequences of doing so. 

On separation, the English Court’s starting point is to share the assets “made” during the marriage or civil partnership equally, with a crosscheck to ensure that this division leaves both parties able to meet their needs and that the overall award is fair. In this context, “needs” is an elastic concept and is referable to the income and housing requirements of the parties, based (in part) on the lifestyle enjoyed during the marriage. 

However, every couple is different and there are numerous steps that can be taken to obtain an outcome which better reflects the wishes and intentions of a specific family. These include pre/post-nuptial agreements, dispositions to third parties and trusts. 

Pre-nups: are they worth the paper they are written on? 

The court’s approach to pre-nups radically changed in 2010 and the bottom line is: if you sign one, expect to be bound by it. 

It is nevertheless still true that pre-nups are not enforceable like a commercial contract. A judge’s discretion to decide the appropriate division of assets cannot be ousted and, where a party’s needs are not met, the court will deviate from the agreement to the extent they consider necessary. However, a procedurally and substantially fair pre-nup is a relevant, and often decisive, circumstance of the case that a judge takes into account when exercising that discretion. 

Pre-nups are no longer the preserve of the rich and famous and it is never too late to put one in place.  Post-nuptial agreements are often requested by the generation above who want comfort that if they pass on gifts to their children they won't automatically be divided if their children later divorce.  

Dispositions to third parties: timing, intention, consent

There are many reasons why a person may want to gift assets during a marriage to a third party such as tax / estate planning or charitable donations. Unfortunately, the law also has to provide for the scenario where someone disposes of an asset before separation to put it beyond the reach of their spouse.  

To protect against this, the court has the power to set aside a transfer if the intention was to defeat the other party's claim upon divorce. If the transfer was made less than three years before the date of the application, the court will presume that the intention was illegitimate. This puts the onus on the person who made the disposition to demonstrate that their intention was not to deprive their soon-to-be former spouse. 

The power extends to transfers made before the three-year cut-off but for those transfers, the presumption is reversed. 

To avoid the risk of a costly dispute and the court potentially reversing a legitimate transfer upon separation, individuals should:

• inform their spouse of their intention before the transfer is made

• get their spouse's agreement and, importantly, document that consent

• keep copies of advice obtained at the time which evidences the reason for the transfer. 

If the issue ever comes before the court - contemporaneous documents are king!

Can you trust a Trust? Is a trust asset ring-fenced or a sitting duck? 

There is a misconception that trust interests fall outside the pot of assets to be dealt with upon divorce. However, the arms of the English court are long, and careful consideration needs to be given to the establishment and treatment of a trust during the marriage to enhance its efficacy.

The worst case scenario is that if the court finds the trust to be a "nuptial settlement" it can set it aside completely or vary it in favour of the other spouse. Even if the trust isn't considered a nuptial settlement, it could be treated as a resource to the party who retains an interest in it and the other spouse be awarded more of the non-trust assets to achieve a "fair" outcome. 

There are various considerations which the court will take into account when dealing with a trust asset such as when the trust was set up, who falls within the class of beneficiaries and patterns of distributions e.g. historically has the trust paid out every time a request was made? The law on this is extremely complicated and specialist advice should be sought from the inception of the trust. 

Over 200,000 people decide to get married every year in England and Wales and it is natural for some to want to preserve family assets, either from the outset of a marriage or before a significant life event such as an inheritance or gift to a third party.  Open communication and having a little knowledge of how the law works from the start of a relationship can go a long way to give peace of mind for the future.