Research published by Investec Investment and Wealth shows that almost one third of parents are unwilling to provide financial assistance or inheritance because they fear that their children will divorce and wealth will be lost outside the family. In a survey of 1000 parents, 12% of their children had already separated and 14% had no confidence that their children’s marriages would last for life.
Apparently one in seven parents are considering setting up a discretionary trust to try to protect family wealth. Some one in 5 worried that inheritance would be spent on unnecessary extravagances such as holidays.
Many of the older generation, keen to pass wealth to their children are undoubtedly worried by the issues outlined by the Investec research. What they often don’t know is that pre and post-nuptial agreements now have a high degree of enforceability in the English divorce courts and that the use of these could be a very valuable protection without the tax disadvantages that can sometimes arise in the use of discretionary trusts.
If parents wish to make a life-time transfer of land, shares, assets or cash they could offer this to their child provided their child agrees to have a pre-nuptial agreement (or a post-nuptial if they are already married) made in advance of the gift. In our experience a child and their spouse are often willing to do this if it ensures that the gift is made – at that point they often are clearly not considering divorce, so it is a very effective thing to insist on before making such a gift. The agreement would make it clear that the assets transferred came from one side of the family and that in the event of divorce, the asset is intended to be retained by the spouse whose family gifted it.
Provided there are sufficient other funds in the marriage it is highly likely that a court would uphold the agreement in the event of divorce. Of course the agreement has to be drawn up within legal guidelines otherwise it may not be upheld so legal advice should always be sought when contemplating this sort of gift and agreement. We have considerable experience in the preparation of these agreements and the growth in their popularity is clear year on year.