The preservation and protection of intergenerational family wealth is often high on the agenda for the families who have generated that wealth as well as the financial professionals and lawyers who advise them. When a relationship breaks down and divorce becomes a reality, this issue becomes even more prominent but by then it is sometimes too late to take steps to protect the assets that may have been built up over many generations.

The answer is not to spend or transfer assets out of the other person’s reach at the start of or in the middle of divorce proceedings in order to try and avoid claims. This can lead to disastrous consequences in England and Wales. The answer is to consider these issues well in advance of any marriage or absent of any notion of separation and take steps to try and preserve wealth.

This article looks at the steps that can be taken to preserve inter-generational wealth in an English family law context. It considers the use of Trusts, pre- nuptial and post nuptial agreements as well as other practical steps that can be taken to protect assets and therefore reduce risk.

 

ENGLAND & WALES AND THE LAW

 

England & Wales is sometimes described as the “Divorce Capital of the World”as it is perceived as making favourable financial orders for the spouse in the weaker financial position. A common law/discretionary approach is adopted which results in far reaching orders being made the type and extent of which are unheard of in many countries across Europe and the rest of the world. Unlike many countries, particularly throughout Europe, there is no codified law.

England & Wales has no default marital regimes. In many other parts of the world, marital regimes often found in pre- nuptial agreements have an important role to play in clearly categorising and defining precisely what assets will or will not form part of the marital pot for division on divorce. These documents will be binding. This is not the case in England & Wales, where pre-nuptial or post agreements can be ignored altogether or only implemented in part, if the Court feels that this would result in an “unfair” outcome. That is not to say they are not still helpful tools.

The starting point for the division of capital on divorce in England & Wales is the equal division of all assets generated by a couple during the marriage. This is known as matrimonial property and the sharing principle applies. It is not uncommon for the Court to move away from the 50/50 principle, if that share is deemed inadequate to meet the reasonable financial needs, particularly for the weaker financial party who is also the primary carer for the children. Sometimes they receive a greater share than 50% of the marital assets when it is deemed by the Courts that additional money is required to meet their reasonable financial needs.

England & Wales does not automatically ringfence and exclude inherited assets, pre-marital assets, gifted assets and those generated after separation. If those assets are required to meet the reasonable needs of the weaker financial party, then they will be utilised. This therefore means that a spouse on divorce can potentially make a claim against long standing intergenerational money contained within trusts and other investments that were acquired long before the marriage. Many European and non-European countries find this an extraordinary concept to digest.

Pensions can also be divided in England (although where the pension is based might impact the scope for such orders being implemented)

Maintenance orders can also be made for the soon to be ex -spouse as well as the children. Spousal maintenance orders can last for many years post- divorce and sometimes even for joint lives, particularly where the weaker spouse has not worked for years, has either no pension provision or was never expected to do so. Many countries across the world allow maintenance for children but not for ex -spouses and where they do, spousal maintenance is typically only paid for a short period of time and not for years.

England also has extremely onerous powers of financial disclosure. The Court can frequently look behind company and trust structures to see how they operate and to what extent a spouse or partner has influence over payments they receive from such assets (considering past as well as current activities of those entities). Further, Trust and company assets (and their true usage) can be investigated thoroughly. Trustees or company directors might even be core third parties to proceedings or, witnesses in proceedings.

The Court can alter the legal ownership of assets, including shares, property, pensions. It can also sometimes find Trusts to be asham” or that they should be set- aside. The terms of Trusts or direct assets paid from them can also be altered.

It is therefore no surprise that many weaker financial parties therefore seek to have their divorces heard in England & Wales.

 

JURISDICTION FOR DIVORCE IN ENGLAND & WALES

 

There has to be a connection with England before the English Court will entertain a divorce case here. In order for someone to have sufficient connection to England & Wales to start divorce proceedings here they have to show:

 

  • Both spouses are habitually resident in England and Wales; or
  • Both spouses were last habitually resident in England and Wales and one of them still resides there; or
  • The Respondent (i.e. the person receiving the divorce paperwork) is habitually resident in England and Wales; or
  • The Applicant (i.e. the person commencing the divorce proceedings) has resided in England and Wales for one year immediately prior to the Petition and is habitually resident in England and Wales; or
  • The Applicant is domiciled in England and Wales and has resided there for 6 months immediately prior to the divorce petitioner and is habitually resident there; or
  • Both spouses are domiciled in England and Wales. (Domicile is the equivalent of nationality in European terms).
  • Only if none of the above apply and neither spouse can bring a divorce in any other EU member state, then proceedings can also be started if either spouse (i.e. any one spouse) is domiciled in England & Wales on the date of the divorce petition.

In essence, if either spouse is living in England & Wales, it makes it highly probably that divorce proceedings can be started there, but if both live here, England certainly has jurisdiction for divorce.

 

SO WHAT CAN BE DONE TO PROTECT FAMILY WEALTH?

 

Here is a list of some of the steps that can be taken by the person seeking to protect and preserve their family wealth:

  • Seek specialist legal and financial advice early if there are English connections or English assets. By early this could be prior to any structuring of family wealth or if marriage is being contemplated (at least 6 months before the wedding). This could ultimately save a lot of money.

 

  • Try to look at maintaining some control over lifestyle spending during the marriage. Base spending upon an acceptable sum. Try to avoid setting precedents for higher maintenance or living costs as these could form the basis of sums being claimed on divorce. (Lifestyle is factored into what an English Court deems reasonable needs!)

 

  • Try to encourage your spouse to use their own income stream (if working) rather than being reliant on your funds or those you receive from a trust fund.

 

  • If payments are made from a Trust are made to you, then ensure their specific purpose is carefully recorded and consider loans from the Trust rather than gifts e.g. when buying properties and be careful about how the use of any property is described.

 

  • Keep Trust and company assets you do not wish to be considered as available assets for division on divorce, as separate as possible from personal funds. Assets held in Trust and/or in companies can be helpful, but only if they are commenced without contemplation of separation or to purposefully dissipate assets which would otherwise be included in the pot for distribution upon divorce or separation.

 

  • Ensure that the trust funds or company’s assets and drawings are being treated exactly in accordance with the use described in the trust deed/letters of wishes and/or the companies’ Articles of Associationor shareholders agreements.

 

  • If you are thinking of starting a company with your spouse, look at how the shares will be held and in which proportions or whether it’s better that only one of you is a shareholder. Also, define the roles in the company carefully etc.

 

  • If you are not yet married, consider sensitively whether there is a need to marry! This can be particularly important where one spouse has considerably greater wealth than another and where they might have been married previously and their new spouse might be keen to start a family early on in the relationship. The rights of cohabitants in England & Wales are very limited in comparison to those of married couples.

 

  • If you still wish to marry, consider a pre-nuptial agreement and or letters of wishes and or shareholders agreements if one or both spouses are shareholders of a company. Pre-nuptial agreements are not automatically binding in England however if there is a significant difference in the level of family wealth prior to the marriage it is definitely better for a couple to enter into one than not. They are given strong evidential weight if they are entered freely, with full knowledge of all material facts and with both parties having the benefit of legal advice.

 

  • Whilst it is better to enter into a pre-nuptial agreement prior to a marriage, if this is not possible and both parties agree, it is possible to record the intended financial arrangements on divorce in a post nuptial agreement i.e. a document signed by the couple after the marriage. Again, these documents are not binding but will be given strong evidential weight in any divorce proceedings. Any such agreement will however require the full consent of the other party.

 

As can be seen, having an early consultation with a family lawyer to identify risks in any family law matters is so important.

 

About Lucy Loizou

Lucy Loizou, is a Partner with the International Family Law Group LLP. She is regarded as one of the leading family lawyers in England and Wales. She undertakes complex financial disputes and has worked on several cases involving high net worth assets often including international elements. She has also acted for several high-profile individuals and assisted in resolving their disputes swiftly and discretely. Lucy also advises clients with difficult corporate and trust interests. She has experience dealing with the national media and has written family law articles for various legal journals. She regularly lectures on areas of family law. Lucy is also known as the “go to” lawyer for cases involving Greek and Cypriot elements. She has her own fortnightly radio show on London Greek Radio where she answers questions on all family related matters. Lucy is described in this year’s Legal 500 UK Guide as combining ‘international knowledge of different laws with excellent client care”

 

 

 

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