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How to Protect your Wealth During Divorce

It is a sad reality that as many as 40 per cent of marriages now end in divorce. Unsurprisingly parents are increasingly reluctant to provide financial assistance to their adult children because they are concerned that the money could be lost in a divorce. We are often approached by anxious parents who are keen to ensure that family wealth intended for their children and grandchildren won’t fall into the hands of their estranged son or daughter in law, should they later divorce.

Below we list a number of proactive steps that can be taken to help preserve wealth intended for immediate family, in the event of a divorce later down the line.

Pre-nuptial agreements

Pre-nuptial agreements (“pre-nups”) are often used to protect family wealth and any contributions parents have made, or intend to make, to their children. If a parent wants to make a gift, transfer properties or assets, or leave inheritance to an adult child but protect them from division in the event of a future divorce, a prenuptial agreement is essential.

Whilst currently there is no act of Parliament in England and Wales making these agreements binding, in practice they will be enforced so long as they are freely entered into by both parties 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.

There has been a steady rise over the last 10 years in those seeking to have a pre-nup in place. They are much more common than they were a decade ago and increasingly, clients are looking to prepare pre-nups to give them more certainty about their financial rights and obligations if the marriage breaks down and also to tackle financial, tax and succession planning.

Post-nuptial agreements

After marriage, a postnuptial agreement (“post-nup”) serves the same purpose as a pre-nup and can be entered into at any time. In exactly the same way, a post-nup sets out how assets should be distributed should the marriage break down. The most common reasons why a post-nup, rather than a pre-nup is entered into is that it was not thought about before the marriage, the couple simply ran out of time before the marriage to have a properly considered, negotiated and executed pre-nup drawn up (the Law Commissions recommendation is that the agreement should be entered into at least 28 days before a wedding) or there has been a change in financial circumstances (such as a gift or advanced inheritance) for one of the parties to the marriage.

Loan agreements

If a parent expects repayment of their contribution to an adult child’s finances, then this should be set out in writing when the money is advanced. It is increasingly common for parents to contribute money to their offspring for a family home, or property renovations and if that contribution is a loan, not a gift, then a properly drawn up loan agreement can provide an added layer of protection in helping to ring-fence that money upon a future divorce.

In a divorce, it will be far easier to persuade a judge that the contribution from one party’s parents towards the deposit on the family home was a firm loan which needs to be repaid, rather than a gift, if there is a clear, contemporaneous agreement drawn up and signed. Ideally this should be a formal loan deed drawn up by a lawyer and should set out the sum to be loaned, the purpose of the loan and detailing repayment terms and conditions.

No-one goes into marriage wanting to think about and plan for divorce and for parents, asking a child and their (future) spouse to do so is not an easy task at all. However, an experienced matrimonial lawyer will help to address this sensitively and cohesively, whilst achieving the necessary protection required.

Contact our family law team

Whether you need advice on a pre-nuptial agreement, separation and divorce, or issues involving your children, including mediation, you can depend on GoodLaw Solicitors LLP. We understand that contacting a solicitor can be daunting and stressful and we make every effort to deal with our clients’ issues professionally and with empathy. We ensure that clients have direct access to their legal representative who will listen to their needs and provide comprehensive and cost-effective legal advice and support. You can also be assured that all cases are dealt with impartially and with total confidentiality.