High Net Worth Divorce

High net worth (HNW) divorces usually involve situations where the assets, pensions and/or income exceed what the divorce court believes the reasonable financial needs of both spouses to be.  

The assets owned by a couple can include limited companies or other businesses, various types of trust, inherited assets, on and offshore investments as well as property and pension funds. The family’s wealth structure often spans decades (if not generations) and can be complex – often having been set up with a view to tax efficiency and/or family succession planning, but seldom in contemplation of divorce. 

How can I protect my wealth in divorce?

Prenuptial (also known as premarital) agreements are often used to protect either generational or pre-acquired assets in high net worth cases. Under English law such agreements are not legally binding but can be highly influential provided certain conditions are met, such as independent legal advice, financial disclosure, and a lack of undue pressure to sign. 

However, it remains unlikely that this type of agreement will be successful in defeating legitimate financial claims in divorce, if there is a financial need to have recourse to them. That is why it is vital to obtain legal advice at an early stage so that a timely assessment can be made of the likely impact of separation. 

What are the alternative dispute resolution processes?

Many high net worth divorces are quietly settled out of court. There are various alternative dispute resolution processes including:

• round table meetings
• direct discussions
• mediation
• collaborative law involvement 
• early neutral evaluation by independent qualified lawyers

Agreements will often incorporate a confidentiality clause to make sure that the terms of any settlement can’t be discussed outside of the divorce itself.  We tend to recommend the use of such a clause in appropriate cases in order to protect everyone’s privacy, including that of any children of the marriage. 

If it goes to court, will it affect my financial settlement?

In divorce proceedings there are times when the involvement of the court is unavoidable or the best option.  This is something that we would discuss with you at an early stage when we review the three common principles of asset division in divorce, which are:

1.     Financial Need

In an HNW case financial needs will usually be generously interpreted but will not be the most significant consideration where the assets exceed needs.

2.     Compensation

Often claimed, but rarely successful, a compensation claim is based on an assertion that one spouse would be in a better financial position but for the economic disadvantages that decisions made within the marriage have left them with.  

Typically, a spouse who gives up a career might seek to engage the compensation principles. Courts are very reluctant to make awards based on compensation though, and usually decide a case without recourse to it.

3.     Sharing

This tends to be the most significant principle engaged in a HNW case. Where assets have arisen solely within the marriage, as a result of the sole or joint endeavours of the couple, then particularly after a long marriage the court’s starting point will be an equal sharing of those assets.

It will be important to consider issues of tax, liquidity, pension lifetime allowances and business/corporate discounts, either for minority shareholdings or for the inherent risk in a limited company or business asset, compared to say property or other types of investment. 

There are many circumstances where assets fall into a category that is not considered to fall within the sharing principle. For example:

a.     Inherited assets, particularly if they have been ring-fenced during the marriage and/or have been inherited towards the end of the marriage, or even post-separation;

b.     Discretionary trusts and certain other types of family trusts set up for the purpose of tax efficiency rather than with the intention of avoiding a spouse’s financial claim in divorce;

c.     Intergenerational businesses where discounts may often be applied to reflect the inherited nature of the endeavour. Although the value of the business will still be looked at by the court, attention will be paid to when and how the business first came into being. Where there is a family business, whose lineage it descends from is a good pointer to which spouse is likely to have a prior claim on it. 

What about assets I owned before I married?

Assets owned prior to the relationship/marriage can often be regarded as non-matrimonial property when it comes to a distribution of wealth on divorce. All of the assets need to be regarded in context though. The longer ago that something was brought in, the less significance it is likely to carry on exit. 

What will happen to our children?

Apart from financial issues relating to children such as general maintenance, school fees and so on, it is usually possible to achieve a financial clean break in a HNW case.  

Typically this is done through the capitalisation of spousal maintenance claims using the Duxbury actuarial principles to arrive at a sum sufficient to discharge a maintenance obligation for the anticipated lifespan of the recipient. 

This sum is often added to a calculated housing need and the result cross-checked against the overall amount of marital assets to determine whether the sharing principle has been properly applied and the overall result is fair. Perhaps somewhat perversely, the greater the amount of assets, the more likely it is that a fair share will encompass not only housing but future income needs, without the need of significant departure from equality.  

Where a HNW couple’s finances include  trusts, businesses, property or non-property assets/investments, maintenance needs or the provision for financial support of children, the most important thing is to get detailed advice early on. Often that will include tax and independent financial advice to ensure that any settlement is as effective as possible.