What impact can English divorce proceedings have on wealthy international families and are family offices prepared for this?
“English divorce proceedings arguably pose one of the biggest threats to a family’s wealth.
The approach of the English court is very different to many other jurisdictions around the world. The court here has very broad discretion when it comes to dividing assets and, ultimately, will seek to achieve ‘fairness’.
Typically, assets accrued during a marriage will be shared equally. All assets – including those held offshore – are potentially in the pot. Unlike most other jurisdictions, pre-acquired, gifted and inherited property can all be divided to meet a claimant spouse’s needs. As a result, over the last few years, our firm has seen a number of substantial financial awards being made. England is now very much seen as the forum of choice for wealthy international divorce litigants, many of whom have Jersey structures.
Family office advice is often focused around tax, investment allocation, succession planning and philanthropy. In my opinion, asset protection in the context of potential family litigation – or ‘divorce planning’ – is not always high enough up the agenda for family offices. This is perhaps surprising given what is at stake when substantial wealth is involved. It is, in my view becoming increasingly important that family offices consider these issues from the outset and work with families and other advisers to mitigate the serious financial risks divorce poses”.
How can wealth be ‘divorce proofed’?
“Well drafted pre and postnuptial agreements (‘PNAs’) remain the single most effective way to protect wealth in the event of a divorce.
Despite widespread belief to the contrary, PNAs are not automatically binding in England. Broadly speaking, the court should now uphold the terms of a PNA which has been freely entered into with a full understanding of its implications, unless it would be unfair to do so. We have, certainly over the last 10 or so years, seen the courts placing increasing weight on these agreements in appropriate circumstances.
There are a number of important points to consider if a PNA is to prove effective. Entering into a PNA at the last minute is fraught with risk and, in the event of a divorce, could lead to arguments around pressure and duress potentially weakening the PNA. Ideally, a PNA should be signed no less than 28 days before a marriage. It is important parties each obtain specialist independent legal advice and provide disclosure of their respective financial positions. Suitable financial provision – which at the very least meets a need – is also key. ‘Needs’ is very much an elastic concept but, typically, will mean at least suitable housing and income moving forward. Without that, a PNA will likely be considered unfair and afforded little or no weight by a court”.
As a trusted adviser, how do you raise these tricky issues with a family?
“The short answer to your question about raising tricky issues with a family is: sensitively and diplomatically.
As I explained earlier, wealthy families need to be aware of the risks posed by potential divorce proceedings. Planning ahead and having these discussions from the outset is key. Very often, families will wait until there are already problems in a relationship before taking action – from an asset protection perspective that is too late; it then becomes a case of damage limitation. Ideally, divorce planning should be addressed head-on and as part of family office governance and wider wealth planning strategies. In many ways for families and their offices, asset protection solutions, in this context, are a form of insurance policy; they may never have to pay out but, if they do, it is crucial to have a good policy and adequate protection in place when significant assets are involved”.
“English divorce proceedings can pose a real problem for trustees, including those offshore.
In the event a trust beneficiary divorces, trustees will often find themselves caught up in family proceedings and facing a number of a difficult decisions. This will typically involve striking a careful balance between protecting the wider interests of the trust and those of the divorcing beneficiary. It will be important to establish, at the outset, a robust strategy so the trustees are clear on the stance they are going to adopt within the proceedings.
Before taking any steps, trustees should obtain specialist legal advice both on and offshore. Often, it will be necessary to seek approval and directions from the court whose law governs the trust. A prior ‘blessing’ by, for example, the Royal Court in Jersey of steps the trustees propose to take within English proceedings will often be appropriate and, further, will help protect the trustees from potential breach of trust claims later down the line”.
Ruben Sinha Lawyer, Bryan Cave Leighton Paisner (BCLP)
Ruben is a lawyer in the Family Asset Protection team which is part of the wider global private wealth group at Bryan Cave Leighton Paisner (BCLP). He advises ultra-high net worth clients, professional trustees, private banks and family offices in complex international cases. He has developed a niche practice advising at the ‘intersection’ of family and chancery work, with many of his cases involving interrelated matrimonial and private client issues. He has particular expertise in cases involving offshore trusts. His clients include industrialists, royalty, leading entrepreneurs and wealthy international families with connections to the UK. He regularly advises high-profile families and public figures, for whom discretion is key. Read his full profile on the BCLP website: www.bclplaw.com/en-GB/people/ruben-sinha.html