What steps should you consider to protect family wealth against possible future marriage breakdown?
In Scotland we benefit from a clearly defined statutory concept of “matrimonial property” or “partnership property” in relation to which a claim can be made in the event of a couple’s separation. In the same vein we benefit from a degree of certainty in relation to the assets which are excluded from any such claim and close attention should be paid to these concepts in succession planning.
These excluded assets include any gifts from a third party (gifts between spouses or civil partners are in the “pot”) or inheritance as long as any such gift or inheritance remains in largely the same form. Also excluded are any assets owned by either spouse before the marriage. Such assets are “safe” so long as they remain in their original form. However, should a party purchase an asset with the funds or invest in matrimonial property, the otherwise non-matrimonial property has been transposed into the matrimonial “pot”.
Parents wishing to pass on wealth to the next generation, whether land, a home, cash or investments, should take careful advice to ensure such gifts are protected. A recipient child who seeks to use their inheritance to purchase an asset during their marriage/civil partnership will wish to avoid inadvertently exposing their inheritance to a claim. It is not enough simply to keep such assets out of a spouse’s legal ownership, further steps must be taken to prevent the asset from slipping into that matrimonial “pot”.
Further, a deviation from the normal rule on what does or does not constitute matrimonial property applies in relation to the matrimonial home. Where one party purchases a home prior to the marriage and then proceeds to live in that home with their new spouse, despite it being purchased prior to the marriage this asset may end up forming part of the matrimonial property on separation. That is should it be established that the property was bought with the intention of it being the family home of the couple once they marry. In the case of dubiety, the circumstances of the case will be scrutinised to establish the intention of that party at the time. If the home is deemed to be the family home then this could result in not only a greater financial claim but also certain other ancillary rights such as the right of the other party to occupy the property notwithstanding it is owned by their spouse.
The options available to avoid these unwanted outcomes range from the most basic documenting of intention (as a gift to their child alone and not as a joint gift to child and partner/spouse) to contracts or Minutes of Agreement whether between parent and child (we assume a child over 16) and/or the child and their partner/spouse. Pre and post-nuptial agreements are an important and effective tool in a family’s armoury to ring fence wealth, and contrary to popular belief, enforceable, so long as proper advice has been secured by both parties. Agreements which are poorly considered and/or drafted may not be given the weight intended when trying to establish a couple’s true intentions.
It is also important, when looking to protect family wealth, to clearly identify the source of any financial contributions particularly the source of those contributions. Such careful consideration, even if a party has failed to document their intention, supports a “special circumstances” argument in the event of separation for recognition to be given in the overall settlement to the fact the source of funding was not through the efforts of the party’s to the marriage thereby justifying an unequal division of matrimonial property in one party’s favour.
A significant hurdle for a party considering their options as outlined above is the fear of being perceived as prioritising financial matters over romance, and their forthcoming nuptials. However, forewarned is undoubtedly forearmed – it is far better to secure family wealth and make mutually acceptable arrangements from the outset rather than face potentially difficult discussions, and indeed court action which might have been avoided with a little forethought.
Lindsey Ogilvie is a family law partner, Turcan Connell