Protecting assets from divorce

Around 42% of UK marriages end in divorce. With divorce rates in 2021 reaching their highest in seven years, this increase illustrates the importance of ensuring a stable financial future for clients where marriage is a concern.

Can they safeguard their assets in the event of a split – and if so, how can this be done? This article will provide you with some guidance on protecting assets from divorce.

Assets, ownership, and divorce

Deciding to get a divorce from a partner can be a very difficult time. One of the most stressful aspects of divorce tends to be the financial side of proceedings, having to divide up the assets and deciding which spouse keeps the family home.

This is especially tricky in instances where an individual has inherited the home or brought significant assets with them into the marriage. It may not feel fair to have to split these assets equally in a divorce settlement when they were the sole property of an individual pre-marriage.

Trusts: protecting assets from divorce

Setting up a trust to preserve wealth for future generations is one of the most effective ways of protecting family wealth from divorce.

The recent case of WX v HX heard at the Family Division of the England and Wales High Court (the Court) has highlighted that the manner in which assets are managed and utilised during a marriage can determine their treatment on divorce, resulting in outcomes that may seem unfair.

The case concerned an application for a financial remedy order made by the Wife (WX) against her Husband (HX). Both parties brought significant assets into the 33-year marriage; these were mostly from the husband’s career but included £14m deriving from the wife’s family. The couple’s combined assets totalled £55m.

During the marriage, HX’s assets had been incorporated into the matrimonial property as he used his income to meet the family’s outgoings, purchase their homes, and other assets. On the other hand, WX’s family assets were largely held in trusts of which she was a beneficiary. These were kept completely separate from the shared matrimonial assets. Although she used the income to meet some of her outgoings, the capital remained untouched.

Assets are categorised into two classes:

• Matrimonial Assets: these originate from each party’s endeavours during the marriage. The stance on divorce is that matrimonial assets are shared equally.
• Non-Matrimonial Assets: these derive from a source outside the marriage. These are retained by the spouse who brought them to the marriage.

The only caveat to this is that non-matrimonial assets may be shared where they have been ‘mingled’ with matrimonial assets, which is what happened in this case. HX brought £10m into the marriage, a combination of inheritance and pre-marital income, however, as this had not been kept separate and was used to support the family during marriage, they lost their non-matrimonial character.

The husband argued that, following the divorce, all of the assets should be shared equally. The wife argued that she should retain her family assets and that the remaining assets should be shared equally. The wife largely succeeded and left the marriage with significantly more than half of the couple’s assets.

A key fact of this case was the finding that the wife’s non-matrimonial assets had been kept separate and also protected by the trust, which allowed her to maintain her property bought pre-marriage.

Prenuptial and postnuptial agreements

There are further ways in which you can protect your assets. Entering into a prenuptial agreement before marriage, or postnuptial agreement afterwards, will help set out how assets should be divided between a couple in the event of a divorce.

Although it’s not something couples want to hear, it’s always important to factor in the possible implications of a future divorce. This will assist both parties in understanding their potential financial future.

CTT have an experienced Private Client team who can assist clients with ensuring the appropriate protections are in place in the eventuality of a divorce. Where clients already have planning in place and are concerned about the divorce of a Beneficiary, please contact the Client Care Team for further assistance.

For further, in-depth information on the above, sign up to our Trust Management Course.