How can high-net-worth individuals protect their assets during marriage and divorce in the UK?

Divorce can be high stakes for ultra-high-net-worth individuals (UHNWIs) and high-net-worth individuals (HNWIs): without adequate protections in place, they risk losing a substantial part of their assets. Planning for and implementing wealth protection strategies is key to minimising the effects of a division of assets upon divorce.

In the UK, the family courts oversee the fair division of assets between divorcing spouses. The courts will consider various factors, including the length of the marriage; the parties’ financial needs and their standard of living; the contributions each party has made to the marriage; the current and future earning capacities of both parties; and the needs of any dependant children.

The first step in asset protection planning is to complete full financial disclosure, similar to an inventory of all individual assets. Assets include income and pensions, real estate, investments, business interests, savings, cars, boats, planes, art or collectibles, and other luxury personal items. Identify each asset in terms of when and how it was acquired, who owns or has a beneficial interest in it, whether it is owned outright or financed in some way, whether it is income-producing, whether it is appreciating or depreciating, and whether it requires ongoing expenditure. Where possible, distinguish between assets already owned or acquired before the marriage, assets acquired during the marriage, and assets acquired through inheritance or gifts. Next, determine the current value of each asset. Some assets will be straightforward to value, whilst others may require professional valuations. Any debts or financing on assets will also need to be taken into account.

What are the common asset protection strategies?

Prenuptial agreements: these are legal contracts entered into before marriage/civil partnership and which set out the division of property, financial responsibilities, and other related issues if the marriage ends. Whilst not automatically binding in the UK, courts can take them into account provided they are deemed to be fair, reasonable, entered into voluntarily with full and honest disclosure, and properly executed. Pre-nuptial agreements are becoming increasingly powerful tools to protect HNWIs and their assets and, if drafted correctly with both parties obtaining independent legal advice, they can be extremely effective in protecting assets.

Postnuptial agreements: these are similar in content to prenuptial agreements but are entered into after marriage/civil partnership. They can be useful where there has been a substantial change in the parties’ circumstances or to address any financial concerns that have arisen during the marriage/civil partnership. Similar hurdles exist in the preparation of postnuptial agreements and the parties, together with their representatives, must be mindful of what a court would deem to be a fair and reasonable settlement taking into account all relevant circumstances.

Trusts, offshore accounts, and corporate entities: HNWIs will often be familiar with strategies used to safeguard wealth from potential legal claims and creditors. Similar strategies can be used to safeguard wealth on divorce. Trusts can, in certain circumstances, be a useful tool as assets can be transferred to the trust and managed by an independent trustee for the benefit of beneficiaries, affording privacy and asset protection along with potential tax benefits. Offshore accounts can also be effective in providing privacy. Corporate entities may also be used effectively, to structure the ownership of money, assets or property. In all cases, however, care must be taken to comply with relevant laws if a HNWI is to avoid being accused of hiding assets, so specialist legal and financial advice will be essential.

Other considerations

Any asset protection planning will need to consider arrangements relating to children of the relationship. Liquidity planning will also be essential, to ensure access to funds when needed, and this becomes particularly important during contested legal disputes that can take many months, or even years, to resolve. Separating bank accounts and credit cards can help maintain financial autonomy and prevent disputes whilst divorce proceedings are ongoing.

Post-divorce, estate planning will be crucial for HNWIs. Existing wills will need to be updated and life/health/property insurance arrangements will need to be revisited.

Throughout the process of planning, implementing and revisiting, there will also be tax considerations that will necessitate specialist advice.

A specialist lawyer can help you plan and implement wealth protection strategies and provide guidance through the difficult process of divorce. It is often prudent for HNWIs to seek advice at any early stage in order to protect their assets and secure their future income should the worst occur. Keystone’s family team work in tandem with specialist financial advisers in order to achieve the best possible outcome for their clients.

If you have any questions about asset protection strategies, please contact Family and Matrimonial Partner Corinne Parke.