Divorce is never a simple process, however when the financial stakes are higher, things are often more complicated. In this article we look at some important factors in divorce and finance that affect high net worth individuals, making it important to seek specialist legal advice and support from a divorce solicitor.
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High net-worth divorce issues
When it comes to high net worth divorce, simple things like Trusts can get very complicated. There are a few areas that you will need to understand if you are a high networth individual going through a divorce.
Prenuptial and Postnuptial Agreements
Pre and post nuptial agreements can be a useful tool for ring fencing inherited assets, large amounts of family wealth or simply business or personal wealth accrued prior to the marriage. However, it is necessary to be aware that any agreements can be challenged in court, and whilst they are increasingly upheld, it is important to ensure they are well planned and considered documents that comply with the latest guidance as set down by the relevant authorities.
Trusts
In many high-net worth divorces, arguments can arise as to whether assets held in Trust should or should not be excluded from the “matrimonial pot”. Quite often there is a dispute as to whether the Trust has been set up to defeat the other spouse’s financial claims. Sometimes it is clear that there is a valid reason why the Trust was set up, other times this clarity can be missing.
In some circumstances the Family Court can determine that assets held within a Trust must be encroached upon and utilised to meet the needs of the parties. This means that when the Court is faced with a case involving a Trust, they often look past the structure, and consider the reality of the situation to decide which assets are available to meet the parties’ needs.
Corporate Structures and Business Assets
All assets, properties, savings, pensions, investments, and even businesses, can be divided, transferred, or potentially sold upon divorce. This can make divorce particularly stressful if you are a business owner. The court does prefer to leave the business assets with the business owner, and provide the non-business owner more of the other assets, if possible. If this does not achieve a fair or practical outcome, then it is within the court’s powers to force the sale of a company.
Valuing the party’s business interests, or the company as a whole, is a key stage on the way to achieving a fair or favourable outcome in the divorce. Where there are multiple shareholders, or where both spouses’ own shares and play important roles in the running of the company, this can make valuing their interests in the company more complicated.
Child Support – Higher Income and Issues of Previous Marriages
There is a statutory formula used by the Child Maintenance Service to calculate the amount of child support that a non-resident parent should be paying the resident parent (parent with more than 50% of the care of the children). This calculation starts with the individual’s yearly gross income after pension contributions, and considers other factors which could reduce this gross income.
The maximum income that the CMS can use in their calculation is £3,000 per week, regardless of how much the individual earns. For any additional income to be considered, the resident parent must apply to the Court. Therefore, if you are a high earner the impetus is on you to agree to a suitable level of child support. If you are separated from a high earning individual, you must weigh up the merits of applying to court to ‘top-up’ the amount of child support you receive. Any calculation must also take into consideration how many other children the paying parent is responsible for. This would include children from previous marriages.
Pensions
In instances of multiple marriages, it may be possible to separate pension wealth accrued before the marriage, but this can be a complex exercise and a difficult argument to win where there has been a long relationship between the parties. To achieve the most accurate analysis of the pensions accrued by both parties, an actuary or PODE (pensions on divorce expert) will often be instructed to ensure that in-depth, expert advice is given on the types of, and value of pensions involved, and the most efficient way of sharing those assets, to facilitate negotiations between parties.
International Issues
If a high net worth individual splits their time during the year between two or more countries, it can lead to commence divorce proceedings in a country in which they perceive they might gain a more favourable settlement. Potentially where the country’s culture and legal system favours husbands controlling the family wealth over wives. Subsequent arguments over the right country to deal with the divorce can ensue and so it is best to obtain advice at an early stage.
There is some limited statutory protection under the Matrimonial and Family Proceedings Act 1984. When a couple divorce overseas, but have assets in or a strong connection to England and Wales, this act enables this jurisdiction to make orders granting additional financial provision to the applicant spouse.
Additional things to consider
Definition of ’needs’: When considering the appropriate division of assets upon divorce, the focus of the Court is on the needs of the parties. In most cases, the main needs are for housing, and present and future income.
Special contribution: It is possible to depart from equality when dividing the matrimonial assets, if one party can successfully demonstrate that they have made “special contributions” to the marriage. Courts have been reluctant to provide any clear definitions as to what can be “special”, and there are only a handful of successful cases.
Confidentiality, Publicity, Private: Parties may wish to keep their affairs outside of the public court system so that they can be dealt with swiftly and discreetly. This can be achieved using Private FDRs or Arbitration.
FDRs: FDRs (Financial Dispute Resolution Appointments) occur after there has been disclosure of all financial information and any expert reports have been obtained. The FDR negotiations take place between the parties, in an attempt to reach an agreement.
Arbitration: An Arbitrator will consider the facts of the case and make a decision which is final and legally binding on both parties. However, Arbitration may not be suitable where one of the party’s suspects that they may fare better in the Court system, or where they are simply not yet ready to have a binding decision imposed upon them.
Non-disclosure
Throughout financial remedy proceedings, parties have an ongoing duty of full and frank disclosure, honouring transparency, and co-operation.
The landmark case of Imerman v Tchenguiz concerned access to information which was obtained improperly, perhaps through a breach of trust or even hacking. In this case, the wife’s brother was concerned that the husband was going to attempt to conceal assets in the divorce proceedings and therefore because they worked together, he accessed his computer and downloaded large quantities of documents that the wife had not seen. The husband applied to the Court to have the documents restricted and returned to him. It was held that the documents obtained by the wife’s brother through “improper acquisition” must be returned to the husband but the wife was allowed to rely on her recollection of the contents of the documents.
Non-disclosure in high net worth divorces is common and fertile ground for acrimonious litigation. Forensic accountants and investigators are instructed to unravel some complex financial dealings and corporate structures that are put in place.
How can Goughs help?
Goughs have many years of supporting our higher net-worth clients, including the complex issues surrounding divorce, separation and finance. If you are looking for help through this difficult area, then please get in touch. We will ensure you get the best support and assistance, from one of our dedicated team. Thank you for reading this article, we hope you found it useful. We look forward to speaking with you if we can provide further assistance.
