Divorce and What To Do with The family Money

When talking about divorce it’s never long before pensions, finances and how much the whole process costs comes into the conversation.

There has been the usual spike in January divorces once again, not least the richest man in the world Jeff Bezos of Amazon announcing his split from his wife, and whilst we may not deal in billions each client can access the expertise of our financial services team and get advice on the financial side of a divorce

Divorce solicitors working alongside financial advisers who are in house, are independent and all specialists in their field is essential to the seemless service we can offer clients.

“Divorce can have wide-ranging detrimental effects, not least on family wealth but sensible steps can be taken in order to preserve wealth over the long term –protecting against all sorts of unseen future events which may or may not include a divorce somewhere along the lines,” said Financial Partner, Richard Eastwood.

Family Trusts

Parents with significant family wealth naturally want to help their children financially but may be concerned that if a marriage doesn’t last their family wealth could be lost to their divorcing son or daughter-in-law, not to mention in legal fees. Firstly, wishes must be discussed and understood, and secondly, they must be documented. The Will is usually the first point of call, but a Trust with an accompanying Letter of Wishes also provides a strong foundation for the future protection of family wealth.

A common scenario for families, including those of both modest and considerable wealth, is for parents to be assisting their son or daughter with their first house purchase. A financial gift from parent to child may contribute towards or even form the entirety of the deposit.  An often-unvoiced fear, however, is that the relationship may not last, and on divorce up to half of the gift could disappear from the family, which of course could be many years later.

To help avoid this scenario, it is possible to make a loan to the son or daughter through a discretionary reversionary interest trust, at the discretion of the trustees. Following a request from the beneficiary, the trustees would create a loan agreement and once signed would then loan the money. This remains a debt owed to the Trust, so should the marriage fail, the monies could be safeguarded, ensuring wealth remains within the family.

A word of caution on prenuptial agreements – it’s sometimes a good idea to consider them only as a part of a wider planning strategy, with more robust legal structures in place to provide greater certainty.

This month the House of Commons are due to review a Bill targeting so called “predatory marriages”, so that it may not necessarily be the case that a new marriage automatically revokes a Will. But while such debate continues, clients should be urged to review their Wills and ensure they are robust and up-to-date – especially at the time of marriage or divorce.

Inheritance Planning

It is also worth reiterating that once a divorce is finalised, an individual has lost the interspousal/civil partner Inheritance tax(IHT) free transfer of assets and transferability of the Nil Rate Band (NRB) & Residence Nil Rate Band (RNRB) (if applicable), thus under current legislation the maximum NRB and RNRB that could be used to offset against assets in the current tax year would be £450,000 (£325,000 NRB and £125,000 RNRB, if applicable), rising to £475,000 in the 2019/20 tax year and £500,000 in 2020/21, which could lead to some recently divorced people facing significant IHT liabilities on their estates (unless they remarry or conduct some IHT mitigation planning!).

“Divorce is painful and there are no simple remedies for the pain. But advisers are in a position to listen, to support, to guide, and to offer much-needed assistance for the financial practicalities of splitting up,” added Richard.

 

For advice on planning, tax and pensions, call for a chat with Richard on 0161 785 3500 or for advice on your divorce call Lucinda McWatt.

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.