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Protecting your Assets on Divorce

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It comes as no surprise that Englandhas been dubbed the divorce capital of the world. With settlements such as that seen between Heather Mills and Sir Paul McCartney; spouses have been able to gain large fortunes upon divorce. 

However, there are certain precautions one may take to protect their assets. A good starting point is a pre-nuptial agreement. These agreements refer to an arrangement between the parties before marriage as to how assets should be distributed in the event of divorce. Since the 2010 case of Radamacher v Garantino the Courts have tended to give far greater weight to these agreements as long as they do not result in harsh outcomes for the spouses or children eg a wealthy husband could not enforce a pre-nuptial agreement which left his unemployed wife and children with no financial support.

Pre-nuptial agreements, especially amongst wealthier individuals, are much more common in today’s society and are increasingly viewed as a legitimate and acceptable way of creating greater certainty for both parties to a marriage. Post-nuptial agreements can also be arranged. These are similar to pre-nuptial agreements, other than the timing of such an arrangement takes place after the marriage, and in practice they are less common.  

Pre/post-nuptial agreements should always be entered into after both parties have had independent legal advice. A family lawyer should be able to draft an agreement between couples that will be acceptable in the eyes of the courts. Such a precaution if executed correctly could save much time and money, if there is a subsequent divorce. 

In divorce proceedings, the courts aim is to identify matrimonial assets and non- matrimonial assets. The latter property may not be factored into account by the courts when deciding on the terms of settlement, provided the needs of the parties maybe adequately met without recourse to those assets.

The reasoning behind this logic is that the non-matrimonial assets are viewed as property that the individuals owned before entering into the marriage as opposed to matrimonial assets that were gained generated from during the marriage. Assets once owned by an individual may later on be viewed by the courts as matrimonial assets if the other spouse has benefited or used the property during the marriage.  Therefore, before marriage it would be desirable to protect certain property by classifying it as a non matrimonial asset.

A prime example of such a scenario would be a son set to inherit a family farm who is also soon to be married. The parents may wish to protect the farm in the event of the sons divorce.

A common route to achieve such an aim is the creation of a trust in the property. The above scenario will be used to illustrate such a method.

Before the marriage of their son the parents should put the farmland that the son is set to inherit in a trust with the son becoming a beneficiary. This does not mean to say that the trust property is now untouchable by the courts. If the trust can be proved to be for the benefit of the couple i.e. a nuptial trust, then the courts can effectively gain access to the trust and have unlimited discretion to distribute property, remove trustees and even put an end to the trust.

In order to ascertain whether the trust is to benefit the son or the couple as a whole certain factors will be examined by the court. Below are examples of the key considerations that the court will take into account:

   -Who created the trust?

   -What was their purpose for doing so?

   -Who are the beneficiaries?

   -When was the trust made?

   -What are the terms of the trust?

These questions allow the court to assess the true intentions of the parties. Therefore if it can be seen that the trust was created for the son to carry on the farming business and protect the land then it is likely that the property within the trust may not be accessed by the courts. Such clauses specifically not allowing spouses entitlement to the property may be of great aid in protecting the assets as long as they have been entered into before a marriage and not hastily created immediately before divorce proceedings.

It should be noted that even if a court cannot access the trust fund they may take into account that an individual may benefit from such property and therefore grant a higher sum to the other spouse from matrimonial assets than would otherwise be divided equally.

The above principles are complex legal issues and should not be undertaken without prior legal advice.

The Family Law team at Gepps & Sons are well equipped to assist you on the issues discussed above as well as other methods of asset protection.

For a free initial consultation please telephone 01245 228106 or email paynes@gepp.co.uk