At first, it is understandable that the emotional and psychological toll of getting a divorce takes centre stage when preparing to make such a major life change. ‘How will I adjust to being single again? How did I end up in this position? What will we tell the children?’ are all questions that can flood the mind once the decision has finally been made to separate from a spouse.
However, what tends to follow shortly thereafter is the equally pressing concern of your finances and how these will be managed throughout and after the entire debacle. For people who have worked hard to accumulate personal wealth, the thought of exactly how marital assets will be divided can be particularly concerning here. Fortunately, there are steps that one can take to protect their financial interests before, during, and after a marriage, and the below article explores some of these so you can be better prepared for financial negotiations.
How Does Asset Division in Divorce Work?
When a marriage ends, assets are typically categorized as either matrimonial assets or non-matrimonial assets. By definition, matrimonial assets include property, pensions, savings, and other financial assets that were acquired during the marriage. These are generally subject to division between both parties. Non-matrimonial assets on the other hand, such as inheritance or property owned before the marriage, may be excluded from this division under certain circumstances.
The way that assets are divided will depend on jurisdiction-specific laws. For example, in the UK, courts will aim for what they deem to be a ‘fair’ settlement, but this does not necessarily equate to an exact 50/50 split of everything. You should therefore aim to seek professional legal guidance on what legislation will apply to your circumstances so you can take appropriate measures both before and during your marriage, as well as when divorce proceedings begin, to properly protect your assets and finances.
Steps You Can TakeBefore Marriage
1. Prenuptial Agreements
Getting a prenuptial agreement (aka a prenup) is one of the most effective ways to protect one’s assets in the event of divorce. A prenup outlines exactly how any property, wealth, or family heirlooms you and your partner may own will be dealt with should your marriage ever come to an end. While prenups are not considered to be legally binding in England and Wales, they are increasingly recognized and enforced by courts if they are deemed to be fair and provided they meet the relevant legal standards/requirements – which are:
- The agreement should be signed well before the wedding, 28 days as a minimum, to avoid claims of coercion.
- Both parties must participate in giving full financial disclosure of all their assets and wealth prior to drafting and singing the prenup.
- Each party must seek independent legal advice before signing.
2. Family Loans Instead of Gifts
Another way to keep personal wealth from being ‘up for grabs’ in a potential divorce settlement is to utilise loans. When a family member plans to provide financial assistance or support to you, structuring the contribution as a loan rather than a gift can offer greater protection to that sum. If you do end up in court proceedings, a properly documented loan agreement can strengthen the argument that the money should be repaid to the lender rather than divided as a marital asset. Most family loans where there is no formal loan agreement in place will often be considered as ‘soft loans’, meaning the relevant party is not expected to repay that loan.
3. Using Trusts for Asset Protection
Trusts are also a particularly useful tool for safeguarding family wealth, business assets, and inheritance from becoming part of the marital estate. However, you should note that the structure and timing of the trust does matter significantly. For example, if a trust is established after your marriage or if it is used to support both you and your spouse financially, then it may still be considered a marital asset by the court, thus opening it up to division between you two. This is why it is strongly advised to seek out professional legal and financial guidance when putting one in place so that you can make any necessary provisions to ensure it is fully protected.
Steps You Can Take During Marriage
1. Postnuptial Agreements
If you didn’t sign a prenup before getting married, you still do have the option to protect your assets through a postnuptial agreement (aka a postnup). This document functions similarly to a prenup but it is instead created after the marriage has begun. Note that the same rules of 1) both parties needing to obtain independent legal advice and 2) providing full financial disclosure before drafting and singing the postnup must be applied in order for the court to consider enforcing your post-nuptial agreement.
2. Keeping Premarital Assets Separate
If you owned significant assets before your marriage, you should also try to avoid mingling them with marital assets. For example, if you inherit money, deposit it into a separate bank account rather than a joint one if you want to be able to claim that this should be considered as a non-matrimonial asset in any potential divorce proceedings.
3. Maintaining Clear Financial Records
Never underestimate the sheer importance of having proper documentation that proves your ownership of your assets. You should also make sure you that you have a record of any relevant financial transactions that have occurred during your marriage as courts will scrutinize both parties’ financial history to determine whether an asset should be included or not in the marital estate.
How To Protect Your Assets During Divorce
With all the above being said, it sometimes transpires that you find yourself in a position where, for one reason or another, no significant provisions were made to protect your assets from being considered by the court for division in unforeseen divorce proceedings. When this happens, you will need to act quickly and consider the following:
- Seek Legal Advice As Early As Possible: Consulting an experienced family law solicitor as soon as possible will be crucial to achieving a favourable outcome in your divorce settlement. They will enable you to understand your rights and can guide you in navigating the legal complexities that come hand in hand with all the paperwork involved in the process of separating. By working closely with them on your case, you will be able to develop a strategy to best protect your wealth.
- Explore Mediation and Alternative Dispute Resolution: Divorce doesn’t always have to end in the expensive process of going to court, and this is where mediation can come in as an alternative. It allows both parties to negotiate a fair settlement in a less adversarial setting with the help of a mediator who aids them in coming to an agreement via private talk sessions. Mediation can not only save you a lot of time and money, but it can also help to minimise the stress of separating while also aiding to preserve a less contentious relationship with your ex, which is key if ever you are going to be co-parenting post your divorce.
- Protect Your Business and Professional Assets: If you own a business, steps such as structuring it as an LLC or corporation, keeping business and personal finances separate, and having a buy-sell agreement in place can prevent the business from being considered as a marital asset in divorce proceedings.
- Protect Your Right to the Family Home: If your marital home is registered solely in your spouse’s name, you may need to register a home rights notice (in the UK) or similar legal protection to secure your interest in the property. Staying in the family home, when safe to do so, can also strengthen your claim to the property during settlement negotiations.
- Avoid Hiding Any of Your Assets: One of the worst mistakes one can make when entering into financial negotiations in divorce is attempting to hide their assets. Courts will take a dim view of even a hint of financial dishonesty, and any hidden wealth that is discovered can lead to legal penalties and a less favourable settlement for the offender
Divorce is rarely ever an easy process and the psychological and emotional toll that it can take often leaves people feeling overwhelmed and unsure of where to turn or what to do next. Our family law solicitors at Grayfords understand how crucial it is to provide the right kind of support to you when going through a separation so that you are able to make balanced and well-informed decisions about your future that ensure your financial security. Don’t hesitate to call us today on 020 7100 6100 to book your free initial consultation and find out more about how we can help you with your family matter.
