Protecting the family assets from bad divorces | Family law

There is an increase in children relying on the bank of Mum and Dad to secure their first home or move out of their family home. Parents are also becoming increasingly concerned about money that it intended for their children, which may fall into the hands of an estranged partner after a messy divorce or separation.

This is reflected in a recent case concerning the owner of Graphite India, Mr Krishna Kumar Bangur. His daughter Aparna Bangur married Mr Daga, a City Investment Strategist. After a 10 year marriage they subsequently divorced. The dispute was over a £1 million settlement where Mr Daga argued that he was entitled to the same after the parties had been married for a decade. However Mr Bangur had set up a Trust on behalf of his daughter prior to the couple getting married.

The Judge, Mr Justice Holman dismissed Mr Daga’s claim and ruled the financial terms of the divorce should be based solely on the assets generated during their marriage. This confirms the principle that none marital assets remain protected, particularly those held in trust structures.

Even though divorce in England and Wales has fallen to a 45 year low, parents are increasingly reluctant to provide financial assistance to their adult children, because they are anxious that the money could be lost in a divorce or a bitter breakup. Gifts, advancements and Inheritances are dealt with very differently by the divorce Courts, than trusts and assets generated by the parties during their marriage.

The case reinforces that for the most part English law excludes family assets from the divorce process.

However not all families are able to set up trusts on behalf of their children, or alternatively they do not have those assets at the time the children meet their future husband or wife.

The English Courts have now taken a view and are more widely open to documents which protect family wealth from that of just trusts. These include:-

  • Pre Nuptial Agreements

Pre Nuptial and Post Nuptial Agreements are being used by parents to protect family wealth and any contribution that they may make, or have already made to their children.

The agreement will set out what should happen to each parties assets in the event of a divorce. This therefore offers some protection to families who have assets to protect. There is no act of parliament in England and Wales making these agreements binding, however in practice they will be in force so long as they are freely entered into and do not lead to an unfair outcome for one party.

  • Loan Agreements

If you’re making a contribution to your adult child’s finances and wish to be repaid for those at some point, the advice would be to put it in writing. It would then be far easier to persuade the Court that the loan payment was indeed a loan rather than a gift. This within the divorce settlement would be considered as a loan which therefore would need to be repaid and not a gift or indeed a soft loan which can be paid back at any time.

  • Trusts

Family Trusts can be used to control and protect family assets when a person is too young to handle their affairs or pass on assets, while the person who wishes to initiate the trust is alive. The trustees who act out the wishes of those who set up the trust are the owners of the assets and not the beneficiary. In the case referred to above the daughter, would not have received these and therefore it would not have been an asset which would have been able to be taken into account within the divorce. Putting it bluntly, one could consider that this is keeping these assets safe from gold diggers.

The law recognises a number of trusts which can be utilised to allow families to protect their wealth.

  • The Family Investment Company

This can be utilised to reduce the value of a mistake for Inheritance Tax purposes and the way that we take control, either for the parents or chosen Directors of that company. This can be a complex area and specific advice will need to be taken in relation to this and tax advice after HMRC announced last year that its sights are set on these arrangements and trusts more broadly. However undertaken properly this can allow control to be kept in safe hands without denying a member of the family their right to enjoy dividends and capital, thus attempting to keep it out of reach of the husband or the wife, particularly should the parties separate or divorce.

If you do wish to discuss any aspects concerning these issues then at Thursfields we have a dedicated Wealth Protection team who would be more than happy to assist.

Please contact Shane Miller on 01562 512442 or email: for further information.

Thursfields Wealth Protection solicitors are available at any of our offices and surrounding areas –Birmingham, Worcester, Kidderminster, Solihull, and Halesowen.

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