For those going through a difficult marital or pension situation, there are a number of options which have grown in popularity as a means of protecting wealth. Isobel Robson considers the options.

Pre-nuptial agreements

Pre-nuptial agreements (and even post nuptial agreements) are being used increasingly as a way of protecting assets. In fact, I have seen a very significant increase in these agreements since the beginning of 2006. A growing number of people are seeing pre-nuptial agreements as a way of sorting out financial arrangements in a way which minimises argument (and saves legal costs) later on, rather than an un-romantic suggestion.

These agreements are not yet regarded as fully legally binding, although the courts are moving towards giving them far greater significance in divorce cases. In the high profile Miller case, Lord Nicholls said, "When a partnership ends each is entitled to an equal share of the assets of the partnership, unless there is good reason to the contrary." Pre-nuptial agreements are increasingly on their way to being regarded as good reason to the contrary and in my view, those with significant wealth would be well advised to enter into a pre-nuptial agreement as the best possible way of insuring against future spousal claims to the maximum extent possible under the current law.

These agreements need very careful drafting and should satisfy a number of criteria, as was outlined in the case of K v K [2003] 1FLR 120. In that case a Judge held a wife to the £120,000 stipulated in the pre-nuptial agreement she had signed, out of her husband's assets of £25 million after a 14 month marriage, ignoring her request for £1.6 million.  The wife had assets of £1 million of her own. The Judge also made a lump sum order to the effect that £1.2 million had to be held in trust to provide a home for the child of the marriage (and the wife) until the child finished full time education.

To gain the maximum possible effect, it is important that pre-nuptial agreements meet the following criteria:

Both parties should take full, independent legal advice and the current developing practice is for both parties lawyers to sign a certificate confirming they have given independent advice to their clients before the agreement was entered into;

There should be mutual financial disclosure before the agreement is entered into in most cases it is good practice not only to list the assets but also to place a sound valuation upon those assets;

Neither party should be placed under undue pressure or duress to sign the document;

There should be sufficient time between the agreement and the marriage for both parties to have time to consider the proposed terms an agreement entered into when the wedding dress is bought and the cake iced is probably not going to be as effective as it could be; and,

The agreement should be reviewable although this will depend on the particular parties. I have heard a senior barrister express the view that a review clause may not be that appropriate in view of the problems which may arise if the agreement is not reviewed on the agreed date. What happens if the parties do not agree a revision to the pre-nuptial agreement?  Does it fall or would it stand as it is? It is important, however, that the pre-nuptial agreement reflects the parties respective claims both in terms of the financial climate applicable at the time of their marriage and in later years when they may have accumulated significant additional assets together.

Post-nuptial agreements

These agreements are entered into by couples who are already married but who wish to regulate their future financial positions in the event that they divorce. These are frequently used by those who accumulate or inherit assets during the marriage or by those who have had difficulties within the marriage and who will only proceed with a reconciliation if a post nuptial agreement is prepared. As with pre-nuptial agreements, post-nuptial agreements may also be beneficial.

Recording asset values

It is an extremely prudent step to record assets held during the time of marriage together with a note of the values of those assets. Increasingly, there is a distinction being drawn in the divorce courts between matrimonial property and non-matrimonial property.  Take, for example, the recent case of Fiona S v James S [2006] EWHC 2793 (Fam). Mr Justice Burton came to the aid of those who have what he described as pre-matrimonial assets. This was the case of a 61 year old surveyor with a substantial property and pension portfolio who was ending his seven-and-a-half-year marriage to a much younger wife. The judge ring fenced over a £1 million of the marital assets and then gave the wife 40% of the matrimonial property which amounted to around £3 million.

All the more reason, then, to ensure that there is a professional record of the assets taken into the marriage and the source of these assets.  The "source" of the assets is now regarded as highly significant. There is also a suggestion that assets brought into the marriage by one party but which have constitutionally changed in character during the marriage may not have the safety otherwise afforded to non-matrimonial assets. The differentiation between matrimonial and non-matrimonial assets is only likely to apply where assets exceed the needs of the parties. 

Pre-divorce asset planning

In my view, particularly in light of recent case law, a financial review tax, inheritance planning and succession issues - should involve advice being taken from an experienced family lawyer. Legal advice can then be given as to the vulnerability of assets passed down to the junior generations in the event of a divorce or in relation to claims against the respective estates upon death. Tax savings may be critical to some but a 40% tax burden may be worth bearing if there is a likelihood of a greater loss to a spouse upon divorce. 

A further point to ponder is the issue of liquidity. The less liquid the assets in a case the more difficult it is for a spouse to make a realistic claim upon them and so the structure of any business and land portfolio needs careful attention in a broad ranging review. 

Trusts

Despite the Chancellor's assault upon trusts, discretionary trusts are still worth considering in the context of protection from financial claims in divorce. This area is highly complex and its scope is beyond this article but, again, advice should be sought from an expert family lawyer if these issues arise.

I would like to finish on this point: consider the notion which arose in the cases of Miller and McFarlane that the spouse should be compensated for giving up a career to tend to the needs of the family. In light of these high profile, big money cases, it may well be worthwhile that both parties in a marriage have a source of income to lessen any future income claims which may arise.

Isobel Robson is a partner and head of the highly-rated family department at Yorkshire law firm Andrew Jackson (www.andrewjackson.co.uk) Tel: 01482 325242 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .