The question of protecting assets in the event of a possible future divorce or the dissolution of a civil partnership (for the purposes of this article a dissolution will be covered by the word ‘divorce’) is one which is being pondered by increasing numbers of people for two very good reasons.
The first is that increasing numbers are getting married for the second or third time, with Office for National Statistics (ONS) figures showing that this accounts for more than 30% of marriages.
Marrying in circumstances such as this increases the chances of one or both parties bringing substantial assets to the marriage. It also means that they are more likely to already have children, and to be concerned to protect the assets which they might wish to pass on to those children post any future divorce.
The second reason is that the age at which people get married for the first time has risen. According to figures published by Statista, the age at which people marry for the first time has been rising gradually since the 1970’s – the average age for men was 27.4 in 1972 and had risen to 39.7 by 2019, while for women the ages were 24.7 and 37.3 respectively.
As with the rise in the number of people marrying more than once, this shift has created a situation in which parties are more likely to be bringing assets with them to a marriage. While people embarking on married life are often not particularly disposed toward thinking about what might happen in the event of a divorce, the way in which as assets are divided when a marriage does end in divorce means that it makes sense to spend some time thinking about how best to protect those assets you bring with you.
Financial Settlements in divorce
For a long time, the presumption in England and Wales was that if one party played more of a role in bringing income into the relationship (often referred to as being the ‘breadwinner’), while the other concentrated on staying at home and raising any family, then it would be the former who would be granted most of the assets of the marriage in any financial settlement agreed post-divorce.
In recent years, however, this situation has shifted, as courts have come to reflect both societal shifts in the typical roles of husband and wives and a desire to reach financial settlements which are fair, with this fairness being defined as that set out in Section 25 of the Matrimonial Causes Act 1973.
With this perspective courts will generally work from a starting point of a 50:50 division of assets when reaching a financial settlement, only shifting from this stance if there is felt to be a very good reason for doing so (i.e. if a 50:50 split would see one party left unable to house themselves).
Given that this is the case, it is more important than ever that anyone wishing to protect their assets before entering into a marriage understands the difference between matrimonial assets and non-matrimonial assets.
Protecting Assets in divorce
In simple terms, matrimonial assets are those which have been acquired and are owned jointly by a married couple, and will be divided following any divorce. Non-matrimonial assets, on the other hand, are those which were held by either party before the marriage took place and are less likely to be included in a post-divorce division of assets unless one of the parties has a particular need.
Each case will differ, of course, but the kind of assets which can generally be classified as matrimonial assets, particularly if the marriage has lasted a number of years, could include the family home, any family business, stocks and financial investments, property, vehicles, pensions and savings accounts and furniture and other household items.
Those which would be classified as non-matrimonial assets include those which were inherited by one party during the marriage, assets which were given as a gift to just one party during the marriage, property which was acquired by one party and is owned solely by them, but which is not the family home and assets which were already owned by one of the parties before the marriage.
In order to be classified as non-matrimonial an asset needs to remain distinct and separate from the wider matrimonial wealth. This means that the first thing to bear in mind when protecting your assets before marriage is to be completely certain about what your assets are and how much they are worth, and to avoid them becoming entangled with matrimonial assets – selling valuable items to fund join projects means that the value of those items becomes matrimonial, for example.
An awareness of non-matrimonial items is not enough on its own to guarantee that they will not be included as part of a financial settlement.
You can request for the judge in question to ‘ring fence’ certain items and exclude them from any settlement, but the requirement to meet the financial needs of the less well-off partner will always take precedence.
If these needs cannot be fairly met through the division of the matrimonial assets – in the view of the court – then some of the non-matrimonial assets will be included in the total of any financial settlement.
Prenuptial Agreements
Probably the best way to protect non-matrimonial assets, and the simplest, is to enter into a legal agreement with your partner.
An agreement of this kind, setting out how existing assets will be divided in the event of a divorce, is known as a prenuptial agreement.
For many years, these were regarded as non-legally binding, but more recently, particularly following the divorce case of MN v AN, courts have considered the terms of a prenuptial agreement to be binding, providing it was entered into freely and neither party was pressured into signing.
There are other, slightly more technical stipulations regarding the drafting of a prenuptial agreement, such as both parties having to take independent legal advice, and as a rule, a document of this kind should never be agreed to and signed without taking legal advice to ensure that it is fair and will stand up to any future challenge.
Trusts
It’s also possible to place assets in a trust, which means transferring their ownership from you to a third party while you remain a beneficiary of the trust. A trust of this kind can be set up to ensure that assets pass on to a specified beneficiary, such as a child, upon your death.
Placing non-matrimonial assets in a trust of this kind doesn’t require the consent of the person you are planning on marrying, and asking a solicitor to draw up a trust to hold certain assets is often the option preferred by people who have children from a previous marriage, have been in receipt of a substantial inheritance or have already accumulated substantial wealth.
The fact that you no longer technically own the assets placed in trust means that they are not automatically included as part of the marital estate during divorce proceedings.
It should be borne in mind, however, that a court does still have the power to ‘vary’ a trust if it is felt that there is a nuptial element, ie, if the trust was set up with a specific connection to the marriage.
The court will also base their assessment of whether to include the contents of a trust as part of a wider settlement on a consideration of each party’s expectation of what they would have received from the trust if the wedding had continued.
Utilising a trust to protect assets prior to marriage is therefore a highly complex option and one not without risks. In light of current case law, a prenuptial agreement may offer more certainty with regard to protection of assets, but does, of course, depend upon the other party consenting.
