GN Law - Our People News and TV

Protecting Your Wealth in a High Net Value Divorce

Our People - Loretta Orsi-Barzanti
28 March, 2024

Divorce can be a stressful and emotional experience for anyone. But for high net worth individuals, the stakes are even higher. Protecting your wealth during a divorce requires careful planning and experienced legal representation.

This article will explore some key strategies to safeguard your assets in a high asset divorce. However, these strategies are also relevant for high net worth individuals considering cohabitation.

What is a high net worth divorce?

A high net worth divorce refers to a divorce case where the couple’s combined assets, income, or both, exceed what the court typically considers necessary to meet the reasonable needs of each spouse.

There’s no strict definition of “high net worth,” but it generally involves significant wealth that requires specialised handling during divorce proceedings.

Here are some characteristics of a high net worth divorce:

  • Substantial assets: The couple may have a variety of assets like expensive properties, valuable investments, successful businesses, or trust funds.
  • Complex financial structures: The financial situation can be intricate, involving international assets, offshore accounts, or complex business holdings.
  • High income: One or both spouses may have significant income from salaries, dividends, or business ventures.
  • Focus on needs vs sharing: In a high net worth divorce, the emphasis might shift from simply dividing assets equally to ensuring the financial needs of both spouses are met after the divorce, even if it means one spouse receives a larger share.

Due to the complexity of these cases, high net worth divorces often involve:

  • Specialist divorce lawyers: Experienced divorce lawyers who understand the intricacies of handling significant wealth and complex financial structures.
  • Forensic accountants: Financial experts who uncover hidden assets, value complex holdings, and prepare reports for legal proceedings.
  • Alternative dispute resolution: Methods like mediation or arbitration can be attractive options for high net worth couples seeking a more private and potentially faster resolution than going to court.
  • Tax implications: Careful consideration is needed to minimise the tax burden associated with asset division and spousal support payments.

Identifying and valuing assets during a divorce

It is essential to have a clear and complete picture of the marital estate (all assets and debts), which includes the marital home. Also complex assets like businesses, investments, and property require accurate valuation to ensure each spouse receives their fair share. A forensic accountant can be instrumental in this process by:

  • Investigating financial records to identify hidden assets.
  • Valuing complex holdings using specialised expertise.
  • Preparing reports suitable for legal proceedings.

Strategies for asset protection in a high net worth divorce

Proactive planning is crucial. The sooner you take steps to protect your assets, such as creating a prenuptial agreement or identifying and valuing your marital estate, the stronger your position will be in the event of a divorce.

Considering cohabitation? Protect your assets before you move in

Even if you’re not planning to get married, cohabitation can lead to complex financial situations if not addressed beforehand. Living together can blur the lines between separate and commingled assets. Taking steps like creating a cohabitation agreement that outlines ownership of property and debt allocation can prevent future conflicts.

Premarital and Postnuptial Agreements

A well-drafted prenuptial agreement (prenup) is the most effective way to protect assets acquired before marriage. It can specify how premarital property, inheritances, and business interests will be divided in the event of divorce. This process is known as “ringfencing” these assets, essentially creating a protective ring around them to shield them from marital property division.

If you don’t have a prenup, it may not be too late for a postnuptial agreement. A postnuptial agreement, created during the marriage with full financial disclosure, can still achieve similar goals.

Are these legally binding in the UK?

While not strictly binding, the courts can uphold prenups and postnups if they meet certain criteria. These criteria include:

  • Both parties must have full disclosure of each other’s finances at the time the agreement is signed.
  • Each party should have independent legal counsel review the agreement before signing.
  • The agreement should be fair to both parties at the time it was signed, considering factors like financial circumstances and potential future changes.

Even if not legally binding, a well-drafted prenup or postnup can be very persuasive evidence in court. The judge will consider the agreement alongside other factors when determining a financial settlement.

Separate accounts and maintaining paper trails

Maintaining separate bank accounts for premarital income and assets strengthens your claim to them during divorce. Similarly, keep clear documentation for premarital assets and any financial contributions made towards marital assets (e.g. receipts for renovations on a jointly owned property).

Establishing trusts

While trusts can be used for asset protection in some cases, the UK courts view them with scrutiny in divorce. Genuine trusts established well before marriage with separate assets are more likely to be upheld, whereas using trusts to hide marital assets or manipulate finances can backfire and lead to penalties. Consulting with a legal professional on the use of trusts in your specific situation is essential.

Additional considerations during divorce proceedings

Spousal Support

In high net worth divorces, spousal support payments can be significant. Factors like the length of the marriage, income disparity between the spouses, and the earning capacity of each spouse are considered when determining spousal support. An experienced divorce lawyer can advise you on the potential implications of spousal support in your case.

Tax Implications

Divorce can have significant tax consequences. The division of assets, spousal support payments, and the sale of assets during divorce can all trigger tax liabilities. While this article cannot provide specific tax advice, consulting with a tax professional is highly recommended to understand the potential tax implications of your divorce settlement.

Debt Allocation

In high net worth divorces, a significant focus might be on dividing assets fairly while ensuring both spouses’ financial needs are met after the divorce. Large outstanding loans can affect the overall value of the marital estate and what assets are available for division. For instance, a high-value property with a substantial mortgage might need to be sold to pay off the debt before dividing remaining assets. Or alternatively, if one spouse has a significant loan acquired before marriage, it might not be equally divided.

Moving out of the marital home

In high net worth divorces, the decision to remain in the marital home during separation or move out can be complex. It’s worth noting that leaving the marital home may affect spousal support calculations, especially if one spouse has limited financial resources. Moreover, if children are involved, there might be arguments for one spouse to remain in the home until custody arrangements are finalised.

Contact a specialist divorce lawyer

If you are a high net worth individual facing divorce proceedings or considering a prenuptial or cohabitation agreement, please feel free to contact GN Law on 020 8492 2290 for a consultation. Our experienced divorce solicitors can guide you through the legal process and help you protect your assets.

Related Articles

An Emergency Protection Order (EPO), made under section 44 of the Children Act 1989, is a court order that authorises taking urgent steps to protect a child.
Our People - Jalpa Vadgama
Dividing finances and assets during a divorce can be daunting. One option that can help achieve a more streamlined financial settlement is a lump sum order.
Our People - Loretta Orsi-Barzanti
Care proceedings are a complex legal process that involve social services and the court working together to ensure the safety and well-being of a child.
Our People - Jalpa Vadgama
Going through a divorce is emotionally challenging, and dealing with finances during this time can add significant stress. Before finalising your divorce, it's crucial to address financial matters as your legal status can impact your entitlements.
Our People - Damla Tasyurdu
Confused about dividing finances in your divorce? Explore and understand which types of financial orders can help divide your assets fairly & secure your future.
Our People - Loretta Orsi-Barzanti
Suspecting your ex might be hiding assets during your UK divorce? You're not alone. This guide explores legal options for uncovering hidden assets, including Form E disclosure, forensic accountants, and court orders. Learn how to protect your rights and achieve a fair financial settlement.
Our People - Loretta Orsi-Barzanti

Send a message

We will only use the information you enter in this form to contact you about your enquiry and will not share it with anyone else. Please read our Privacy Notice.

Please note that we are not accepting any new housing work at this time.